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19/01/2024 - 08:50 UTCThe dollar continues to gain for a fifth session in a row on Thursday, with the dollar index (USDX) trading close to levels last seen early in December following solid labor market data that indicate growth in the jobs sector, lowering expectations for an early interest rate cut from the Federal Reserve. Jobless claims dropped to 187,000 for the week ended Jan. 13, the lowest level since September 2022 and below expectations of 207,000.
According to the CME FedWatch Tool, the possibility for a rate cut in the March FOMC meeting is down to 53.8, from 59.5% seen on Thursday while the possibility for an additional rate cut taking place in May is at 43.6%, down from Thursday’s 49.9%.
Gains in the dollar and signs of resilience in the US economy continue to add pressure on gold prices, however, some recovery was observed on Thursday, with the yellow metal ending the session 0.70% higher, supported by rising geopolitical tensions. Some escalation was seen in the Middle East conflict as U.S. and UK forces continue to clash with the Iran-led Houthi group in the Red Sea however, tensions also grew between Iran and Pakistan after a series of strikes.
The main US stock market indices all ended in losses for three-days in a row on Thursday, with investors focusing on fourth quarter earnings in the technology sector and the direction of the U.S. dollar. In company news, Apple shares gained 3.23% after Bank of America upgraded the computer giant to "Buy" and called for more than 20% upside over the next 12 months. Taiwan Semiconductor surged by 9.82% after beating Wall Street’s fourth-quarter earnings and revenue forecasts. Building permits, a leading indicator of future construction, accelerated in December as builders expect the housing market to improve as borrowing costs fall.
For Friday, some price action could be seen later in the session, upon the speech of ECB President Lagarde, Canadian retail sales, preliminary UoM consumer sentiment and inflation expectations, existing home sales and TIC long term purchases.
The EUR/USD pair retreated once again to the area near 1.0845, although it managed to regain some balance afterwards to end the session with minor losses of 0.05%.
The continuation of the uptrend in the greenback was again propped up by firmer readings from US weekly results from the labor market and a healthy rebound in the Philly Fed Manufacturing Index. In the meantime, the probability of a rate cut by the Fed in March hovers around 55%, according to CME Group’s FedWatch Tool.
ECB President C. Lagarde suggested a probable reduction of the bank’s rates at some point in the summer.
Gold prices firmed on Thursday, aided by safe-haven demand amid the Middle East conflict, while investors looked out for further clarity on the U.S. Federal Reserve's future interest rate path.
Atlanta Federal Reserve President Raphael Bostic said he was open to lower rates sooner than anticipated depending on how quickly inflation falls, but the baseline was for cuts to start in the third quarter.
Oil prices settled higher Thursday, as larger-than-expected draw in U.S. crude supplies and easing worries about the demand outlook helped spur bullish bets.
Inventories of U.S. crude fell by roughly 2.5M barrels in the week ended Jan.12, exceeding expectations of a draw of 331,000 barrels. The International Energy Agency stated in its monthly report that it now expects oil demand to grow by 1.24 million barrels per day in 2024, up 180,000 bpd from its previous projection.
U.S. stocks were higher after the close on Thursday, as gains in the Technology, Industrials and Consumer Services sectors led shares higher. At the close in NYSE, the US 30 added 0.54%, while the US 500 gained 0.93%, and the US Tech 100 added 1.75%.
Thursday's market gains were driven by a surge in the technology sector following Bank of America's upgrade of Apple shares to a 'buy' rating.
Several financial institutions, including The Travelers Companies Inc, Regions Financial Corporation, Fifth Third Bancorp, Ally Financial Inc, and State Street Corp, are due to disclose earnings before the bell on Friday. Market participants will also be monitoring December’s existing home sales reading, a snapshot of the US housing market, and preliminary Michigan consumer sentiment and expectations data released on Friday morning.
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