The U.S. dollar fell for yet another session on Wednesday, with the dollar index (USDX) down by 0.47%, breaking below the tight range seen in the last few sessions and hitting levels last seen in March. The move is attributed to recent remarks by Fed chairman Powell and rising expectations that the Fed could proceed with more rate cuts by the end of the year than initially expected. In an interview with Bloomberg Businessweek, Trump said that the strength of the dollar has been hurting the competitiveness of U.S. exports while also pointing to the weakness of yen and yuan, raising concerns he may move to weaken the greenback if he were to win elections this year.
The CME FedWatch shows expectations for a September rate cut remain unchanged at 93.5% while bets for a second rate cut to occur in November currently stand at 56.4%.
The Dow surged to new record highs on Wednesday, fueled by gains in financials and energy stocks. This move came as investors shifted away from technology companies at an accelerated pace, following a tech sell-off led by Nvidia due to geopolitical concerns.
Nvidia's stock plummeted over 6% on Wednesday amid growing anxieties that the U.S. plans to tighten restrictions on chipmaking equipment exports to China. According to a Bloomberg report on Tuesday, the U.S. government is contemplating a crackdown on companies selling critical chipmaking equipment to China. The negative impact on tech investor sentiment, also triggered selloffs in other major tech stocks like Apple, Netflix, and Meta.
In the spotlight for Thursday is the monetary policy statement of the European Central bank and the follow up press conference. Some price action could also be observed upon the release of US jobless claims and the Philly Fed Manufacturing Index.
EUR/USD
The EUR/USD pair surged to reach new 18-week highs on Wednesday as market sentiment leans towards risk-on ahead of the European Central Bank’s (ECB) upcoming rate call scheduled for Thursday.
Traders will closely monitor the ECB’s rate call later today. It is widely anticipated that the ECB will maintain current rates for the time being following a quarter-point rate reduction in June. Given the expectation for stability in rates, traders will be attentive to any changes in policy communication from ECB President Christine Lagarde during the European market session.
Markets have already fully factored in a minimum quarter-point rate cut when the Federal Open Market Committee (FOMC) convenes on September 18, with the meeting at the end of July still anticipated to maintain current rates. Fed Governor Christopher Waller and Richmond Fed President Thomas Barkin have observed that labour markets continue to exhibit strength despite easing inflationary pressures.
Gold
On Wednesday, gold prices hit an all-time high, driven by increasing optimism for an interest-rate cut from the U.S. Federal Reserve in September and a decline in the value of the dollar, which bolstered demand.
Several Fed policymakers have indicated growing comfort with the trajectory of inflation, bringing it closer to the Fed's target after higher-than-expected readings earlier in the year.
Data revealed that production at U.S. factories surpassed expectations in June, contributing to a strong rebound in output in the second quarter.
Currently, markets are indicating a 98% probability of a U.S. rate cut in September, according to the CME FedWatch Tool.
WTI Oil
On Wednesday, oil prices surged by more than 3% due to a larger-than-anticipated weekly decrease in U.S. crude stockpiles. This was further bolstered by a weaker U.S. dollar, which offset concerns about reduced economic growth in China.
According to the Energy Information Administration, energy companies extracted 4.9 million barrels of crude from storage during the week ended July 12. This significant reduction exceeded the 30,000-barrel decline predicted by analysts in a Reuters poll and surpassed the 4.4 million-barrel drop reported by the American Petroleum Institute trade group.
Furthermore, the weakening of the U.S. dollar contributed to the support of oil prices, as the dollar reached a 17-week low against a basket of major currencies.
US 500
The US stock market experienced significant movement on Wednesday. The US 500 and the US Tech 100 faced declines due to a sharp drop in microchip shares and concerns about potential escalation of trade conflicts with China. This led to a continued shift away from megacap tech-related stocks. In contrast, the US 30 saw an increase, driven by strength in the financial and energy sectors.
NVIDIA Corporation notably fell over 6% amidst worries that the US government may expand its ban on companies exporting chipmaking equipment to China. According to reports from Bloomberg on Tuesday, the Biden administration is contemplating stricter regulations on the export of critical chipmaking equipment to China.
On the earnings front, Johnson & Johnson's stock surged nearly 4% following a strong second-quarter performance. The healthcare giant exceeded Wall Street estimates with robust earnings and revenue, largely driven by impressive drug sales.