12/12/2024 - 08:25 UTCThe U.S. dollar has shown resilience once again on Wednesday, appreciating against most major currencies. The dollar index has risen by 0.25% after U.S. CPI data came in line with forecasts, reinforcing expectations the U.S. Federal Reserve will cut interest rates next week. The dollar was also strengthened by a Reuters report suggesting that China may allow its currency to weaken next year, which led to declines in the yuan and other Asian currencies.
Market expectations for a 25-basis point rate cut at the upcoming FOMC meeting, currently stand at 98.6%, as indicated by the CME FedWatch Tool. Odds for rates to remain unchanged stand at 1.4%.
China's top leaders and policymakers are exploring the possibility of allowing the yuan to depreciate in 2025 as they prepare for the potential imposition of higher US tariffs. This move is seen as a strategic response as it could stimulate the Chinese economy by making Chinese exports more competitive. The dollar has already strengthened against the yuan, with the exchange rate reaching 7.2945 on Wednesday.
The US 500 and the US tech 100 indices recovered sharply on Wednesday, with the US tech 100, closing above 20,000 for the first time. This significant surge was fueled by a renewed rally in technology stocks, which was ignited by the release of in-line inflation data that solidified expectations for a Federal Reserve interest rate cut next week. In corporate news, Alphabet Inc. was a standout performer, with its shares jumping over 5% following the announcement of a groundbreaking advancement in quantum computing. Additionally, Broadcom Inc. rallied over 6% on reports that it is collaborating with Apple to develop an AI chip. Tesla Inc. continued its upward trajectory, closing at a record high. The electric vehicle maker's shares have experienced a significant 64% surge since the recent election, fueled by optimism surrounding the potential benefits of the new administration's policies.
For Thursday, markets will most likely be focusing on the ECB interest rate statement, the US core PPI numbers and the weekly jobless claims. Some price action could also be observed on Friday, upon the release of the U.K. GDP report.
The EUR/USD pair slipped for the fourth consecutive session on Wednesday, declining 0.25% and settling near the 1.0500 mark. This downward movement comes as traders await the European Central Bank’s (ECB) upcoming interest rate decision, which has cast a shadow over market sentiment.
Meanwhile, the U.S. Consumer Price Index (CPI) inflation figures released on Wednesday aligned with market expectations, offering little impetus for broader U.S. dollar movements. Investors are now shifting their focus to today's Producer Price Index (PPI) data for further direction.
The ECB is expected to announce another quarter-point rate cut on Thursday, reducing its Main Refinancing Operations Rate to 3.15% from 3.40%. Moreover, attention will turn to U.S. PPI inflation data.
Gold prices continued their upward trajectory on Wednesday, bolstered by U.S. inflation data and mounting expectations of a Federal Reserve rate cut next week.
Following the CPI release, the swaps market priced in a 92% probability of a 25-basis-point rate cut at the Federal Reserve’s December 17-18 meeting.
With the CPI report now behind them, investors are shifting their attention to upcoming economic data, including the U.S. Producer Price Index (PPI) and initial jobless claims for the week ending December 7.
Oil prices rose sharply on Wednesday, driven by the European Union’s adoption of new sanctions aimed at curbing Russian oil exports, a move that could tighten global crude supplies.
The European Union introduced its 15th sanctions package against Russia over the ongoing conflict in Ukraine, with a focus on disrupting the “shadow fleet” of vessels that enable Russia to bypass a G7-imposed $60 per barrel price cap on seaborne crude oil.
Tempering Wednesday’s price rally, the Energy Information Administration reported larger-than-expected increases in U.S. gasoline and distillate inventories, which weighed on crude prices.
Geopolitical dynamics also continue to influence the market. The Kremlin criticized reports of potential tighter U.S. sanctions on Russian oil, accusing the Biden administration of seeking to strain U.S.-Russia relations.
The US 500 and US Tech 100 posted gains on Wednesday, with the US Tech 100 hit a record high, buoyed by optimism over lower rates. Notably, Tesla Inc. reached a record high, while NVIDIA Corporation advanced by over 3%. Consumer inflation data released earlier in the day aligned with expectations, solidifying predictions of a Federal Reserve interest rate cut in December.
Attention now shifts to Thursday’s Producer Price Index (PPI) report, which will be closely analyzed ahead of the Fed’s final policy decision for the year.
The prospect of lower interest rates provided a boost to technology stocks, which saw the largest gains during Wednesday’s session. Speculation of reduced regulatory scrutiny under the current administration and sustained enthusiasm for artificial intelligence also fueled tech sector optimism.
The materials contained on this document should not in any way be construed, either explicitly or implicitly, directly or indirectly, as investment advice, recommendation or suggestion of an investment strategy with respect to a financial instrument, in any manner whatsoever. Any indication of past performance or simulated past performance included in this document is not a reliable indicator of future results. For the full disclaimer click here.
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