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01/08/2024 - 07:56 UTCThe dollar declined against most major currencies on Wednesday, with the dollar index (USDX) down by 0.4% to reach as low as 103.685 within the day. Pressure on the dollar came after the Federal Reserve held rates steady but opened the door for an interest rate cut in September as inflation cools.
Market sentiment, as measured by CME FedWatch, strongly anticipates a Federal Reserve interest rate reduction in September, with the likelihood currently at 86.5%. Moreover, expectations for a follow-up rate cut in November have increased from 60% seen on Wednesday, to 64.1%.
The BOJ raised Japan rates to levels not seen in 15 years, sending the yen surging by 7% in July, its strongest monthly performance since November 2022, after having opened the month near 38-year lows.
In the crypto space Bitcoin and Ethereum, the top two cryptocurrencies by market capitalization, retreated by 2.37% and 1.43% respectively. Crypto market sentiment was dampened by concerns over a potential $2 billion Bitcoin liquidation by the U.S. government and a Bloomberg poll indicating Kamala Harris's lead in key battleground states.
The US 500 surged on Wednesday, posting its largest gain since February, after the Federal Reserve's decision to maintain interest rates. While holding rates steady, the central bank acknowledged recent economic improvements, fueling speculation of an earlier-than-expected rate cut, potentially as soon as September.
In corporate news, AMD shares climbed 5% following better-than-anticipated second-quarter results. The chipmaker's record data center revenue, driven by increased demand from tech giants like Meta and Microsoft, underpinned the strong performance.
On Thursday, the spotlight will be on a key monetary policy report by the Bank of England followed by jobless claims data from the US and the ISM manufacturing PMI.
The EUR/USD pair remained relatively stable near significant technical levels on Wednesday ending the session with minor gains of 0.07%, following the Federal Reserve's decision to maintain current interest rates during its latest meeting. This outcome aligned with market expectations and sets the stage for a critical period leading up to September's Fed rate decision.
The spotlight now turns to Friday's release of the US Nonfarm Payrolls (NFP) report for July, marking the beginning of a crucial period for economic data. As the week progresses, limited economic data from the European Union means investors will focus primarily on the upcoming US NFP figures.
Federal Reserve Chairman Jerome Powell has outlined specific conditions that could lead to a potential rate cut in September. Key among these are sustained improvements in inflation and signs of stability or further weakening in the US labor market.
Gold prices rose on Wednesday, spurred by comments from Federal Reserve Chair Jerome Powell suggesting the possibility of an interest rate cut as early as September, provided inflation aligns with expectations.
However, Powell dismissed the likelihood of a more aggressive 50 basis points cut, which could temper market expectations for new all-time highs in gold prices.
Adding to the bullish sentiment for gold, geopolitical tensions have escalated in the Middle East following the assassination of Hamas leader Ismail Haniyeh in Iran. This event has intensified concerns in a region already experiencing instability due to ongoing conflicts in Gaza and Lebanon.
Oil prices ended the session with huge gains on Wednesday with WTI adding 4.32% while Brent Oil ended the day 379% higher. This rise was driven by concerns that escalating tensions in the Middle East could intensify following the assassination of Hamas leader Ismail Haniyeh in Iran.
The latest data from the U.S. government revealed a substantial decrease in crude oil inventories, with stocks dropping by 3.4 million barrels last week. Such a significant reduction in U.S. crude reserves has further fueled the upward momentum in oil prices.
OPEC+ is expected to begin easing some of its output cuts starting in October. Key OPEC+ ministers will convene on Thursday for an online joint ministerial monitoring committee meeting (JMMC), where they will likely discuss their future production plans.
The US 500 and US Tech 100 recorded large percentage gains on Wednesday ending the session 1.96% and 3.22% higher respectively. The US 30 also posted gains on Wednesday, driven by a significant rally in chip stocks and the Federal Reserve's decision to maintain current interest rates while hinting at potential easing in September, should inflation trends favor it.
At the conclusion of its two-day policy meeting, the Federal Reserve held the benchmark overnight interest rate steady in the 5.25%-5.50% range. However, Fed Chair Jerome Powell noted that there was discussion among policymakers about the possibility of rate cuts, with a "strong majority" agreeing that immediate action was unnecessary.
In the tech sector, Nvidia surged nearly 13%, bolstered by an optimistic 2024 sales forecast for artificial intelligence chips from Advanced Micro Devices, which itself rose more than 4%.
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