ECB Interest Rates, U.S. Jobless Claims, Philly Fed Manufacturing Index

The EUR/USD pair surged to reach new 18-week highs on Wednesday as market sentiment leans towards risk-on ahead of the European Central Bank’s (ECB) upcoming rate call scheduled for Thursday.

Traders will closely monitor the ECB’s rate call later today. It is widely anticipated that the ECB will maintain current rates for the time being following a quarter-point rate reduction in June. Given the expectation for stability in rates, traders will be attentive to any changes in policy communication from ECB President Christine Lagarde during the European market session.

Markets have already fully factored in a minimum quarter-point rate cut when the Federal Open Market Committee (FOMC) convenes on September 18, with the meeting at the end of July still anticipated to maintain current rates. Fed Governor Christopher Waller and Richmond Fed President Thomas Barkin have observed that labour markets continue to exhibit strength despite easing inflationary pressures.

On Wednesday, gold prices hit an all-time high, driven by increasing optimism for an interest-rate cut from the U.S. Federal Reserve in September and a decline in the value of the dollar, which bolstered demand.

Several Fed policymakers have indicated growing comfort with the trajectory of inflation, bringing it closer to the Fed's target after higher-than-expected readings earlier in the year.

Data revealed that production at U.S. factories surpassed expectations in June, contributing to a strong rebound in output in the second quarter.

Currently, markets are indicating a 98% probability of a U.S. rate cut in September, according to the CME FedWatch Tool.

On Wednesday, oil prices surged by more than 3% due to a larger-than-anticipated weekly decrease in U.S. crude stockpiles. This was further bolstered by a weaker U.S. dollar, which offset concerns about reduced economic growth in China.

According to the Energy Information Administration, energy companies extracted 4.9 million barrels of crude from storage during the week ended July 12. This significant reduction exceeded the 30,000-barrel decline predicted by analysts in a Reuters poll and surpassed the 4.4 million-barrel drop reported by the American Petroleum Institute trade group.

Furthermore, the weakening of the U.S. dollar contributed to the support of oil prices, as the dollar reached a 17-week low against a basket of major currencies.

The US stock market experienced significant movement on Wednesday. The US 500 and the US Tech 100 faced declines due to a sharp drop in microchip shares and concerns about potential escalation of trade conflicts with China. This led to a continued shift away from megacap tech-related stocks. In contrast, the US 30 saw an increase, driven by strength in the financial and energy sectors.

NVIDIA Corporation notably fell over 6% amidst worries that the US government may expand its ban on companies exporting chipmaking equipment to China. According to reports from Bloomberg on Tuesday, the Biden administration is contemplating stricter regulations on the export of critical chipmaking equipment to China.

On the earnings front, Johnson & Johnson's stock surged nearly 4% following a strong second-quarter performance. The healthcare giant exceeded Wall Street estimates with robust earnings and revenue, largely driven by impressive drug sales.