04/12/2024 - 08:42 UTCThe U.S. dollar fell slightly against most of its major peers on Tuesday, with the dollar index (USDX) down by 0.07%. Dollar traders are exercising caution as they await a speech from the U.S. Federal Reserve Chair later today. The speech is expected to provide further clarity on the outlook for interest rates with markets anticipating a more gradual easing phase, following a series of positive U.S. economic indicators.
The focus for the week ahead is shifted to the upcoming Non-Farm Payroll report and the unemployment rate as that could be crucial in determining the Federal Reserve’s monetary policy path going forward. Based on the CME Fedwatch tool, the probability of a 25-basis-point interest rate reduction is currently at 74.6%, while odds for rates to remain unchanged stand at 25.4%.
On Tuesday, the US 500 and US tech 100 set new closing records, with the tech sector leading the way. The US 30 however, ended the day slightly lower. Market participants were looking ahead to additional job market data and were reassured by Federal Reserve officials' statements that inflation is trending towards the 2% target and the labor market remains strong. On the corporate front, shares of Amazon increased by 1.3% following the company's announcement of a new suite of artificial intelligence foundation models at its annual AWS conference. Shares of Tesla declined 1.6% after data showed the automaker's sales of China-made electric vehicles fell 4.3% year-on-year to 78,856 in November.
On the energy front, WTI and Brent gained sharply by 2.81% and 2.43% respectively as geopolitical tensions heightened. South Korea's declaration of martial law and the rebel offensive in Syria, which has the potential to draw in forces from several oil-producing countries, contributed to the upward price movement. Furthermore, OPEC+ is likely to extend its output cuts until the end of the first quarter of next year, as decided at their upcoming meeting on Thursday.
Some key events due on Wednesday include the U.S. ISM Services PMI, U.S. Factory Orders, the ADP Non-Farm Employment Change and weekly crude oil inventories by the EIA. Some price action could also be seen upon speeches by and a Fed chairman Jerome Powell and ECB president Lagarde due later in the session.
EUR/USD regained momentum in the first half of the week, reversing a portion of Monday’s losses and climbing above the key 1.0500 level. This move distanced the pair from recent lows, supported by renewed weakness in the US Dollar (USD) and reduced political uncertainty in France.
Fed Chair Jerome Powell adopted a cautious tone, suggesting that further rate cuts may not be necessary in the near term. In Eurozone, ECB board member Isabel Schnabel’s recent hawkish comments have offered some support to the Euro. Schnabel warned against aggressive rate cuts, arguing that such measures may not effectively stimulate growth under current economic conditions.
Gold prices posted minor gains on Tuesday despite rising US Treasury yields. The precious metal found support in broad-based US Dollar weakness, helping to offset pressure from a stronger yield environment.
Bullion extended its gains as market participants brushed aside positive US labor market data released by the Department of Labor. The report revealed a sharp increase in job openings, signaling a resilient labor market.
Looking ahead, this week’s US economic calendar includes key labor market indicators, with Thursday’s Initial Jobless Claims and Friday’s Nonfarm Payrolls for November expected to shape market sentiment.
Oil prices climbed more than 2% on Tuesday as geopolitical risks in the Middle East escalated and markets anticipated an extension of supply cuts from OPEC+ later this week.
The surge in prices followed heightened tensions in the Middle East. Israeli forces continued strikes on targets in Lebanon, alleging violations of last week’s truce agreement by Hezbollah fighters.
While the conflict in Lebanon has not directly disrupted oil supplies, the uncertainty surrounding broader Middle Eastern tensions has raised concerns among traders.
Adding to the bullish sentiment, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) are widely expected to extend production cuts during their meeting on Thursday.
The US 500 and US Tech 100 notched record closing highs on Tuesday, driven by gains in technology and growth-related sectors as investors awaited key U.S. jobs data later this week. Meanwhile, US 30 finished slightly lower.
Federal Reserve policymakers offered reassurance about the economic outlook, noting progress toward the central bank's 2% inflation target and a "solid" labor market. However, they refrained from signaling support for an additional interest rate cut at the Fed’s December policy meeting.
Investors are closely watching upcoming data releases, including November’s private payroll report, the ISM Services PMI, and the highly anticipated monthly employment report on Friday.
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