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18/05/2023 - 07:49 UTCThe U.S. dollar edged higher once again on Wednesday, with the USDX marking a 0.28% daily gain, and rising further in early European trade on Thursday as negotiations to end the debt ceiling standoff in Washington have yet to result in a deal. An even stronger move was observed among emerging market pairs, with the USD/ZAR pair gaining by 0.97%, the USD/MXN adding another 0.65% on its value and the USD/CNH posting a 0.21% increase.
The main stock market indices in the U.S. also rose on Wednesday supported by rising expectations that a potential deal is on its way for the $31.4 trillion federal debt ceiling. In addition, a rebound in regional bank shares brings some optimism to investors that worried about a possible escalation in the sector's issues. All three main stock indices rose by approximately 1% for the day. Japan equity markets continue to surge on Wednesday, following Wall Street's, with the Japan 225 hitting a 20-month high and adding another 2.11% to its value.
Sideways trading activity continues in the cryptos front, with the two main cryptocurrencies fluctuating in a tight range for the whole week and waiting for something to cause a breakout in either direction. Bitcoin gained by almost 1% on Wednesday while Ethereum traded largely flat closing the session 0.10% lower.
With main French and German markets closed due to Bank Holiday, in the spotlight for Thursday is the unemployment claims report, the Philly Fed Manufacturing index and existing home sales data form the U.S. During the day some price action could be seen as several Fed members are due to speak.
The EUR/USD dropped once again on Wednesday, ahead of a speech by European Central Bank President Christine Lagarde late in the session, although the U.S. debt story remains the prime driver.
The pair hit monthly lows near 1.0800 ending the session with a 0.25% decline at 1.083 as the Euro lagged after a slight negative revision to the Eurozone’s April CPI at 0.06% m/m.
Markets now focus mainly on the US dollar as a safe-haven asset, while concerns regarding the European economy could possibly be contributing to the pair’s recent downward momentum.
Gold, tumbled below the $2,000 an ounce level for the first time in two weeks as hawkish signals from the Federal Reserve and easing fears of a U.S. debt default saw traders pivot out of the safe-haven appeal.
The precious metal snapped a two-day downtrend as it was moving near the lowest levels in three weeks, ending the session 0.35% lower at $1982.99. The general trend remains weak as increasing optimism around the debt ceiling is also likely to heap pressure on gold.
Oil price logged sharp gains in Wednesday’s session ending the day 2.87% higher at 72.68. After the Biden administration said that a deal on raising the U.S. debt limit could be reached as soon as this week, avoiding the possibility of a default, a positive impact was observed on market sentiment and this also helped oil prices recover from steep losses seen over the past four weeks.
Data on Wednesday showed that U.S. crude stockpiles unexpectedly surged in the week to May 12, and concerns over rising U.S Supplies sapped the oil recovery with prices trending lower on Thursday morning.
All three major U.S. stock indexes rallied to end higher by more than 1% on Wednesday, as hopes of a deal to raise the debt limit helped investors.
Debt ceiling negotiations, which have become a growing preoccupation of market participants, appeared to be moving in the right direction, with vows from U.S. President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy that the U.S. will avoid a catastrophic default.
The US 500 rose 0.99% to 4,170 while US 30 and US Tech 100 ended the session 1.05% and 1.07% higher respectively.
Further aid on market sentiment could derive from a positive quarterly earnings season, the stabilization in US regional shares, and hopes that the US Federal Reserve has concluded its rate hiking cycle.
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