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12/09/2024 - 08:14 UTCThe US Dollar Index (DXY) remained largely unchanged on Wednesday as it ended the session 0.07% higher following the release of mixed inflation data for August. While overall inflation in the US declined to 2.5% on an annual basis, down from 2.9% in July, core Consumer Price Index (CPI) inflation stayed steady at 3.2%, indicating that underlying inflationary pressures persist.
This data has tempered expectations of a 50-basis-point rate cut by the Federal Reserve, with markets now pricing in a higher likelihood of a more modest 25-basis-point reduction in September. Following the inflation data, the US Dollar Index remained flat as traders adjusted their rate cut expectations. The probability of a 50-basis-point cut by the Fed has significantly decreased, with an 85% chance now being placed on a more moderate 25-basis-point reduction.
All three main U.S. indexes rose on Wednesday as gains in tech stocks helped Wall Street recover from early losses and close higher, even as a stronger-than-expected core inflation reading dampened hopes for a substantial rate cut from the Fed.
Technology's strength also helped markets overlook heightened political uncertainty following a heated presidential debate between Vice President Kamala Harris and former President Donald Trump, where Harris was perceived to have gained an advantage.
In corporate news, Nvidia Corp. soared over 8% during the regular session. The surge was fueled by optimism surrounding the company’s robust demand, particularly for its latest AI chip line, known as Blackwell, as highlighted by CEO Jensen Huang. Nvidia’s strong performance lifted the broader tech sector, buoyed by hopes that sustained demand for AI technology would continue to drive growth. However, the sector remains under pressure following a sharp selloff last week.
Looking ahead, investors will be focused on the upcoming Producer Price Index (PPI) report, due later today, which could provide additional insights into inflation following the strong CPI reading. Investors will also focus on the European Central Bank (ECB). The ECB will announce its decision on monetary policy early on Thursday, and is widely anticipated to cut the three main interest rates by 25 bps each.
The EUR/USD pair slipped slightly on Wednesday, falling 0.09% after the release of the US Core Consumer Price Index (CPI) for August.
The CPI rose 0.3% month-over-month (MoM), up from 0.2% in July, surpassing market expectations and reinforcing projections of a 25 basis points (bps) interest rate cut by the Federal Reserve.
Meanwhile, the European Central Bank (ECB) is widely anticipated to cut its benchmark rate by 25 bps later today, in response to sluggish economic data and a drop in Germany's inflation to 1.9% year-over-year (YoY).
In the US, investors will be watching for the release of the Initial Jobless Claims report for the week ending September 7 and the Producer Price Index (PPI), which could provide further insights into the Federal Reserve's next steps.
Gold prices edged lower on Wednesday as the U.S. dollar and Treasury yields strengthened.
The decline followed U.S. inflation data that prompted investors to scale back expectations of a larger interest rate cut from the Federal Reserve next week.
According to the CME FedWatch tool, markets are pricing in an 87% chance of a 25-bps rate cut next week, up from 71% prior to the inflation report.
Markets are now focusing on upcoming economic releases, including the U.S. Producer Price Index (PPI) and initial jobless claims due on Thursday, which could provide further insights into the Fed’s monetary policy path.
Oil prices climbed more than 1% on Wednesday, driven by concerns over extended production shutdowns in the U.S. offshore oil sector as Hurricane Francine barreled toward Louisiana.
The looming threat of disruption in one of the world’s key oil-producing regions pushed prices higher, despite a rise in U.S. crude inventories.
Earlier in the day, the U.S. Energy Information Administration (EIA) reported a modest increase in crude inventories, with stockpiles rising by 833,000 barrels to 419.1 million barrels for the week ending September 6.
All three major U.S. stock indexes closed higher on Wednesday, as a rally in the technology sector helped counter investor disappointment following a morning inflation report that dampened hopes for a 50-basis-point interest rate cut by the Federal Reserve next week.
The Labor Department reported that the consumer price index (CPI) rose 0.2% in August, matching July’s increase. However, core CPI, which excludes food and energy, rose 0.3% on a monthly basis, slightly exceeding expectations for a 0.2% rise.
The day after the combative U.S. presidential debate, market sentiment was also influenced by political developments. Contracts for Republican candidate Donald Trump fell to 48 cents from 52 cents. Stocks expected to benefit from a Trump presidency, such as cryptocurrency and blockchain-related shares, fell.
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