17/10/2024 - 07:48 UTCThe U.S. dollar strengthened against most of its major peers on Wednesday, with the dollar index (USDX) reaching its highest point in 11 weeks. The move came partly due to Investors lowering expectations of a significant interest rate cut by the Federal Reserve and expectations a potential victory for former President Trump in the upcoming election.
With the U.S. presidential election approaching, investors are closely watching the race and its potential impact on the Federal Reserve's interest rate policy. The former President's proposed tax cuts, relaxed financial regulations, and higher tariffs are seen as supportive of the U.S. dollar. Higher tariffs could negatively affect growth in Asian and European exporting nations, potentially leading their central banks to lower interest rates, weakening their currencies and further boosting the dollar.
According to CME Fedwatch tool current market expectations indicate there is a strong likelihood of a 25-basis-point interest rate reduction, with an 92.1% probability, while the odds of rates remaining unchanged are at 7.9%.
In other news, the British pound fell to its lowest level in two months following weaker-than-expected inflation data, suggesting the Bank of England may be more aggressive in cutting interest rates. The euro also declined to an 11-week low ahead of a European Central Bank meeting where is is expected to cut rates by 25 basis points.
U.S. stock market benchmarks rebounded from Tuesday's modest decline, as the third-quarter earnings season continued to gather momentum on Wednesday. Positive results from Goldman Sachs, Citigroup, and Bank of America helped maintain the positive momentum by reporting strong profits linked to an increase in investment banking revenue. Beyond the banking sector, Abbott Laboratories' stock rose over 1% after the company slightly increased its annual profit forecast, surpassing Wall Street's expectations for quarterly earnings due to strong sales of medical devices. United Airlines' stock soared over 12% following the announcement of better-than-expected third-quarter earnings and a new $1.5 billion share repurchase program.
Some key events later today include the ECB’s interest rate statement, jobless claims and retail sales data from the US, the Philly Fed Manufacturing Index, Industrial Production, TIC Long-Term Purchases and Crude Oil Inventories
The EUR/USD pair is in a steep decline, hitting multi-week lows as the Euro weakens ahead of the European Central Bank's (ECB) crucial rate decision on Thursday. The ECB is widely anticipated to cut interest rates by 25 basis points (bps).
All market attention will be on the ECB during Thursday’s European session. Expectations are high for the ECB to lower its Main Refinancing Operations Rate by 25 bps, from 3.65% to 3.4%. Similarly, the Deposit Facility Rate is likely to see a 25 bps reduction, dropping to 3.25% from 3.5%.
As the ECB's policy moves take center stage, attention will also turn to the US side of the equation, with Thursday's US Retail Sales report in focus.
Gold prices climbed on Wednesday, supported by a decline in US Treasury yields and a dismissal of recent US Dollar strength. Expectations of rate cuts from major central banks, amid softer inflation readings, weighed on bond yields and lifted the non-yielding metal.
Gold gained additional support as investors sought safe-haven assets amid fears of a global economic slowdown and uncertainty surrounding the upcoming US elections.
Attention now turns to key US reports later this week, including Retail Sales, Industrial Production, and Initial Jobless Claims.
Oil prices edged lower on Wednesday, extending the previous week’s sharp losses as easing fears of an escalation in the Middle East conflict and concerns over weak demand pressured the market.
Markets had been on edge, closely monitoring potential Israeli retaliation for an early October missile strike by Iran, as tensions between Israel and Iran-backed forces remain high. The fear of widespread conflict in the region had previously propped up oil prices, with traders factoring in the risk of supply disruptions from the Middle East.
Adding to the bearish sentiment were warnings from the International Energy Agency (IEA) and the Organization of Petroleum Exporting Countries (OPEC) about increasing supply and weakening demand.
The US 30 and US 500 indices closed higher on Wednesday, recovering from the previous session's volatility as chip stocks steadied and Wall Street processed ongoing quarterly earnings reports. Meanwhile, the US Tech 100 finished the day in negative territory.
Morgan Stanley surged more than 6% after reporting stronger-than-expected third-quarter profits, driven by robust investment banking performance. This added to a wave of positive earnings from major banks, including Goldman Sachs, Citigroup, and Bank of America, which also posted solid results.
While chip stocks showed some recovery after Tuesday's sharp sell-off, the broader tech sector remained under pressure. ASML continued to decline, dropping more than 5% after lowering its 2025 sales forecast, fueling concerns about weakening demand for AI-related products.
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