06/02/2025 - 08:37 UTCThe US dollar fell for a third consecutive session against most major currencies on Wednesday, with the dollar index (USDX) down by almost 0.35% with traders still nervous about the escalating trade tensions between the U.S. and China after new tariffs were imposed by Washington. Next week's meeting in Paris will be closely watched as the U.S. seeks to find common ground with China and nearly 100 other countries on the safe and responsible development of artificial intelligence.
While the European Central Bank has cut rates five times since mid-2024, the Bank of England is expected to make its first cut of the year later today. Investors in Europe are watching London closely, as this would be just the Bank of England's third cut since the COVID pandemic. The UK's economy has struggled with near-zero growth since mid-2024, partly due to worries about employer tax increases, despite its current 4.75% base rate.
Wall Street rallied Wednesday, with all three main stock indices moving higher, as lower Treasury yields driven by PMI data indicating a cooling U.S. economy (particularly manufacturing), fueled hopes of Federal Reserve rate cuts despite inflation concerns.
In corporate news, Apple dipped slightly on news of a Chinese App Store probe. Chipmakers, led by Nvidia, boosted Wall Street after Alphabet and others signaled increased AI infrastructure spending in 2025. However, Alphabet itself fell over 7% due to weaker-than-expected cloud revenue. Despite strong earnings, Qualcomm's stock dropped over 4% after hours on concerns about flat patent licensing revenue.
For Thursday, market attention is turned towards the Bank of England that is due to announce its decision on interest rates while later in the day US weekly jobless claims will be released and FOMC members Daly and Waller will speak. On the earnings front, several major players will announce their quarterly results among which are Amazon, Astrazeneca, Eli Lilly and Honeywell.
The EUR/USD pair remained under pressure on Wednesday, facing resistance despite a modest recovery in risk appetite that kept demand for the US Dollar in check.
In the US, ADP Employment Change data for January came in stronger than expected, showing a net gain of 183K payrolls—well above the forecasted decline to 150K from December’s revised 176K.
Looking ahead, December’s Pan-European Retail Sales figures will be released early Thursday. The most significant market event this week will be Friday’s US NFP report.
Gold prices surged over 0.90% on Wednesday, driven by a weaker US Dollar and declining US Treasury yields.
Investor appetite for gold remains strong as US President Donald Trump’s policies and rhetoric continue to inject uncertainty into financial markets. The latest economic data revealed resilience in the US labor market, with January’s ADP Employment Change report showing stronger-than-expected private-sector hiring.
Meanwhile, Federal Reserve (Fed) officials expressed uncertainty regarding the inflationary impact of tariffs. Chicago Fed President Austan Goolsbee cautioned that underestimating the role of tariffs could be a mistake.
Oil prices declined sharply on Wednesday as a significant buildup in U.S. crude and gasoline inventories signaled weakening demand. Additionally, escalating trade tensions between the U.S. and China stoked fears of slower global economic growth.
The latest data from the U.S. Energy Information Administration (EIA) revealed a sharp rise in crude stockpiles last week. Refiners, facing sluggish gasoline demand, have ramped up maintenance efforts, further reducing crude consumption.
Adding to bearish sentiment, China announced tariffs on U.S. oil, liquefied natural gas (LNG), and coal in response to American levies on Chinese exports.
Meanwhile, geopolitical tensions are mounting. Iranian President Masoud Pezeshkian urged OPEC members to unite against potential U.S. sanctions after former President Donald Trump vowed to reinstate his “maximum pressure” campaign on Iran.
The US 500 closed higher on Wednesday, buoyed by declining Treasury yields and a strong rally in Nvidia, which helped the market overcome a sharp decline in Alphabet shares.
Alphabet fell more than 7% after its fourth-quarter revenue missed expectations, with growth in its cloud computing division slowing—a key area tied to artificial intelligence. The tech giant also announced plans to increase capital expenditures to $75 billion in 2025, significantly exceeding analyst forecasts of $58 billion, raising concerns about pressure on free cash flow.
Meanwhile, Nvidia jumped 5%, benefiting from expectations that Alphabet’s increased spending on AI infrastructure will boost demand for its high-performance chips. Other major cloud providers are also expected to ramp up investment, further supporting Nvidia’s outlook.
The ISM Services PMI fell to 52.8 in January, down from December’s 54.0, missing expectations. The weaker-than-expected services data pushed Treasury yields lower, providing a boost to interest-rate-sensitive sectors like technology.
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