18/09/2024 - 07:19 UTCThe U.S. dollar rose in value compared to most major currencies on Tuesday with the dollar index up by around 0.35%. This followed stronger-than-expected retail sales data, which suggested that the Federal Reserve might be less aggressive with interest rate hikes. The U.S. Commerce Department reported on Tuesday that retail sales unexpectedly increased by 0.1% in August. This indicates that the economy remained strong throughout much of the third quarter. The last time the Fed lowered interest rates was in March 2020 during the COVID-19 pandemic.
The Federal Reserve's Federal Open Market Committee will announce its interest rate decision at the end of its meeting on Wednesday and CME Fedwatch tool shows that bets for a 50 bps rate cut are at 63% while a 25 bps appears as less likely with bets at 37%. After the announcement, Fed chairman Powell will hold a press conference.
Despite retail sales numbers announced higher than expected the U.S. stock market closed almost unchanged on Tuesday. The US 30 and the US 500 were flat, while the US tech 100 rose by a mere 0.2%. Nonetheless, positive retail sales number could reassure investors that consumer spending remains strong, easing concerns about the health of the U.S. economy.
The energy sector showed a solid performance, with the two primary crude oil benchmarks WTI and Brent, both gaining by almost 1% by the end of Tuesday’s session. The increase in oil prices could be partially explained by the fact that 12% of crude oil production in the U.S. Gulf of Mexico was halted after Hurricane Francine last week. This disruption boosted oil prices in four out of the last five trading sessions with Brent rebounding from its lowest price in almost three years.
Aside from the long-awaited Fed interest rate announcement, some price action could also be observed upon the release of US building permits, US housing starts and weekly crude oil inventories released by the EIA.
The EUR/USD pair halted its recent bullish recovery on Tuesday, retreating slightly from upward pressure and forming an indecision pattern just above 1.1100.
With a quiet economic calendar on the European side this week, market participants are in a holding pattern, anticipating the Fed's highly anticipated midweek rate decision.
US Retail Sales for August provided some stability to expectations around the Fed's next move, increasing by 0.1%, defying forecasts of a -0.2% contraction.
The Fed’s rate decision on Wednesday is the week’s most significant economic event. Investors have been expecting a rate cut since early this year, with initial hopes for a reduction as early as March.
Gold prices posted minor losses on Tuesday ahead of Wednesday’s Federal Reserve (Fed) monetary policy decision, as the US Dollar strengthened following a stronger-than-expected August US Retail Sales report.
Geopolitical risks in the Middle East remain a concern, with potential for escalation. According to Al-Jazeera, Hezbollah in Lebanon blamed Israel for recent explosions, warning of retaliation. US State Department spokesperson Mathew Miller stated that the US was not involved and was unaware of who was responsible for the incident.
Oil prices rose almost 1% on Tuesday as supply disruptions intensified and traders anticipated increased demand if the U.S. Federal Reserve moves to lower borrowing costs this week, as widely expected.
More than 12% of crude production from the U.S. Gulf of Mexico remains offline following Hurricane Francine last week, contributing to a rise in oil prices for four out of the last five sessions.
Further price support came from ongoing supply disruptions in Libya, where a conflict between rival factions over control of the central bank has reduced oil production and exports, according to Rystad analysts.
Analysts expect U.S. oil inventories to decrease by around 500,000 barrels, with official data from the U.S. Energy Information Administration set to be released on Wednesday.
U.S. stocks closed mostly unchanged on Tuesday, despite a stronger-than-expected retail sales report that eased concerns about an impending economic slowdown, as the Federal Reserve began its latest policy-setting meeting. All three main indexes ended the session with minor gains.
The positive data came as the Federal Reserve began its two-day meeting, which is widely expected to result in an interest rate cut on Wednesday. According to CME’s FedWatch Tool, traders are currently pricing in a 68% probability of a 50 basis point (bps) cut, while a 25 bps reduction has a 32% chance.
In corporate news, Intel shares rallied 2.7% after the chipmaker announced plans to spin off its foundry business, turning it into an independent unit with its own board and the ability to raise capital from external investors.
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