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The dollar gained ground against most major currencies on Thursday, with the dollar index (USDX) ending the session 0.24% higher after the fourth-quarter gross domestic product report which showed higher growth than anticipated adding further signs of resilience in the U.S. economy. Investors will be watching closely, today’s core PCE price index data, the Fed’s preferred inflation gauge that could shed some light on the bank’s monetary policy plans. The data comes just a few days before the Fed’s first meeting in 2024, where the central bank is widely expected to keep rates on hold.
According to the CME Fedwatch tool, the markets price in a 50% possibility that the 1st rate cut in 2024 will take place in the March FOMC meeting, while the possibility for an additional rate hike taking place in May is at 39.6%.
The main stock market indices appear to be taking a breather, trading steadily near recently reached record highs, following the better-than-expected growth data reported in the US and ahead of key inflation data due later today. Fourth quarter earnings are also in focus, with companies Colgate-Palmolive and American Express due to publish their quarterly results.
Oil prices gained sharply for yet another session on Thursday, with the two main oil benchmarks WTI and Brent, closing the session with gains of more than 2% of their value, following additional stimulus measures announced by the central bank of China, solid U.S. economic growth indicated in the GDP report and rising geopolitical turmoil in the Middle East.
For Friday, some price action could be seen later in the session, upon the release of the long-awaited monthly Core PCE Price Index, US personal spending and personal income data and US pending home sales.
The EUR/USD pair ended the session 0.33% lower on Thursday following the lack of surprises from the European Central Bank event, particularly from President Lagarde’s press conference.
The central bank left its policy rates unchanged. President Lagarde reported that there is a consensus that the bank must be data-dependent and reiterated her previous comments on rates. Lagarde mentioned that there is a consensus at the table that it is premature to talk about rate cuts.
Also contributing to the selling pressure in the European currency, Germany’s Business Climate tracked by the IFO institute eased to 85.2.
On the other side of the coin, firmer-than-expected flash US Q4 GDP figures helped the dollar maintain its positive streak since the beginning of the year. Focus now shifts to the U.S. personal consumption expenditure (PCE) data due on Friday.
Gold edged higher on Thursday as Treasury yields fell after U.S. GDP data highlighted that pace of inflation slowed, while focus shifted to inflation data for further hints on the Federal Reserve's interest rate cut strategy.
The U.S. economy grew faster than expected in the fourth quarter amid strong consumer spending, with growth for the full year coming in at 2.5%. The report also showed fourth-quarter inflation pressures subsiding.
Gold also got some support from a separate report that showed initial claims for state unemployment benefits in the United States increased 25,000 to a seasonally adjusted 214,000 for the week ended Jan. 20. Economists had forecast 200,000 claims in the latest week.
Oil prices gained more than 2% on Thursday to settle at their highest since December after U.S. economic data showed faster-than-expected growth in the last quarter and as tensions in the Red Sea kept disrupting global trade.
Yemen's Houthi leader said on Thursday the group would continue targeting ships linked to Israel until aid reaches the Palestinian people in Gaza. A Ukrainian drone attack on an oil refinery in southern Russia overnight also sparked supply worries.
U.S. stocks were higher after the close on Thursday, as gains in the Telecoms, Oil & Gas and Utilities sectors led shares higher. U.S. ended the session higher at record levels as market participants mulled mostly upbeat corporate earnings, while stronger-than-expected economic growth and slowing inflation bolstered expectations for a soft landing pushing Treasury yields lower.
Economic data released earlier Thursday showed that the U.S. economy grew at a faster than anticipated rate in the fourth quarter, with further signs that inflation pressures are receding supporting bets that the economy is likely to avoid a recession.
tesla Inc fell more than 12% after reporting weaker-than-expected Q4 results. IBM, up 9%, was the torchbearer for rising tech stocks after the tech company reported Q4 results that topped analyst estimates. Boeing stock fell nearly 6% after the U.S. aviation regulator said that it will not let the planemaker expand production of its 737 MAX jet.
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