28/06/2024 - 08:06 UTCThe U.S. dollar traded moderately lower against most major currencies on Thursday, following two consecutive sessions of gains sending the dollar index (USDX) to levels last seen in April. Markets brace for Friday's release of the PCE price index, a critical data point for the Fed's monetary policy planning ahead.
In other news, softening data in the world's largest economy supported expectations the Federal Reserve will start cutting interest rates this year. Despite improved U.S. jobless claims numbers, new orders for key U.S.-manufactured capital goods unexpectedly fell in May, suggesting business spending on equipment weakened in the second quarter. In addition, the GDP report showed an increase in growth by a revised 1.4% annualized rate last quarter, down from the 3.4% registered in the last three months of 2023.
According to widely cited CME Fedwatch tool, a September rate cut is the most likely scenario with chances at 57.9% while for November, the possibility stands at around 50.3%.
The main U.S. stock indices ended in positive territory on Thursday and continue to move higher early on Friday as 2024 presidential election candidates Joe Biden and his predecessor Donald Trump completed their first debate. Reports are indicating that Trump, even though he gave some misleading and inaccurate comments, put in a stronger showing than his opponent and consensus is that a Trump victory would mean lower corporate taxes, tougher trade relations and therefore higher stock prices and bond yields.
With PCE numbers in focus, investors will look for further hints on what the next steps for the Fed will be, hinging on continued inflation moderation after positive CPI data and PPI deflationary indications.
Some price action could be observed later today upon the release of Chicago PMI data, revised UoM consumer sentiment and inflation expectations and personal income and spending numbers.
The EUR/USD pair ended the session with moderate gains of 0.26% on Thursday, as market participants turn their focus on Friday’s key US inflation print. European economic data has been strictly mid-tier in the back half of the trading week, leaving markets to turn an eye towards US Personal Consumption Expenditure Price Index (PCE) inflation, due during Friday’s upcoming US market window.
US Initial Jobless Claims for the week ended Jun 21 came in better than expected, showing 233K net new jobless benefits seekers.
US Gross Domestic Product (GDP) met expectations on Thursday, with Q1 GDP slightly revised to 1.4% from the initial print of 1.3%.
Friday’s US PCE Price Index inflation print will be the week’s key data figure as investors hope for continued cooling in US inflation numbers to help push the Federal Reserve (Fed) closer toward rate cuts.
Gold prices rose more than 1% on Thursday from the over two-week low touched in the previous session, as the dollar softened, and the spotlight shifted to key U.S. inflation data for clues on the Federal Reserve's policy path.
Making gold more attractive for other currency holders, the dollar weakened 0.2% against a basket of currencies, while benchmark 10-year yields fell to 4.2845%.
Investors have largely stuck to their view of around two interest-rate cuts this year, according to LSEG's FedWatch data, even though the U.S. central bank has projected only one.
Data for the Personal Consumption Expenditures Price Index (CPE), a key inflation report and the Fed's preferred inflation gauge, is due on Friday.
Oil prices closed higher on Thursday due to escalating tensions in the Middle East, sparking concerns about possible disruptions in global oil supplies. This overshadowed the previous day's data showing an unexpected increase in U.S. inventories. The ongoing Israel-Hamas conflict in Gaza has raised apprehensions about its potential to spread throughout the oil-rich Middle East region, lending sustained support to the market.
Cross-border strains between Israel and Lebanon's Hezbollah have been escalating in recent weeks, and Turkish President Tayyip Erdogan added to these by saying his country stood in solidarity with Lebanon and called on the region's countries to show their support.
U.S. stock index futures rose slightly on Thursday as investors kept to the sidelines ahead of key inflation data that is likely to factor into the outlook for interest rates.
Focus was squarely on PCE price index data, due later today. The reading is the Federal Reserve’s preferred inflation gauge and is likely to provide more cues on the central bank’s stance on interest rates.
The data is expected to show inflation cooled slightly in May but remained well above the Fed’s 2% annual target range.
Weekly jobless claims fell more than expected, while durable goods orders also edged lower in May.
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