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20/12/2024 - 08:34 UTCThe U.S. dollar continues to move higher against most major currencies on Thursday, with the dollar index adding a total of 1.24% to its value on the weekly chart, following hints from the Federal Reserve that it will follow a less aggressive approach to future monetary policy adjustments. Fed Chair Jerome Powell mentioned that more reductions in borrowing costs could tamper with progress in lowering high inflation, sending bond yields higher.
In wall street, risk sentiment took a big hit after a temporary spending bill proposed by the President-elect was rejected by Congress, increasing the likelihood of a government shutdown with all three major stock indices extending losses from the previous session. The bill, which included demands for increased government spending and a higher debt ceiling, was voted down by the House of Representatives. Government funding is scheduled to expire at midnight on Friday, potentially triggering a partial government shutdown. This could disrupt various government operations, including border security and travel.
Oil prices declined in the past week as fears about future demand growth, particularly in China, weighed on the market. Both major oil benchmarks were set to end the week lower, with a nearly 3% loss. Sinopec's prediction that China's crude oil imports and consumption could peak as early as 2025 and 2027, respectively, due to weakening diesel and gasoline demand, exacerbated these concerns.
On the cryptos front, Bitcoin and Ethereum are down in by approximately 4% and 13% respectively on the weekly chart, following the Federal Reserve's announcement that it would not participate in any government initiatives to acquire significant holdings of the world's largest cryptocurrency. The top two cryptocurrencies experienced a significant pullback, driven other factors as well including a wave of profit-taking after the recent record highs.
For Friday markets will most likely be focusing on the Fed’s favourite gauge for inflation, the monthly Core PCE Price index as well as a consumer sentiment and inflation expectations survey from the University of Michigan.
The EUR/USD pair traded around 1.0360 on Thursday ending the session with minor gains. The pair’s defensive stance reflects the US Federal Reserve’s (Fed) less dovish tone, despite a 25 basis point (bps) interest rate cut during its December meeting on Wednesday.
At its final meeting of the year, the Fed announced a modest rate cut but projected a much slower pace of monetary policy easing in 2025.
Meanwhile, across the Atlantic, the European Central Bank (ECB) is expected to maintain a more dovish policy trajectory, with analysts forecasting at least a full percentage point of rate cuts in 2024. The divergence in monetary policy between the ECB and the Fed is likely to weigh on the Euro.
Gold prices managed to pare some of their Wednesday losses, inching up by 0.21% on Thursday. The modest rebound follows the Federal Reserve’s (Fed) decision to slow the pace of rate cuts, signaling just two reductions in 2025.
US economic data on Thursday painted a picture of resilience, with a decline in weekly unemployment claims and confirmation of robust third-quarter GDP growth. Despite the solid data, market participants remain fixated on the Fed’s trajectory for 2025.
Looking ahead, market focus will shift to key economic data, including the core Personal Consumption Expenditures (PCE) Price Index—widely regarded as the Fed’s preferred inflation measure.
Oil prices edged lower on Thursday after central banks in the U.S. and Europe expressed caution regarding further monetary policy easing, fueling concerns about subdued economic activity and its potential impact on oil demand in the coming year.
Fed Chair Jerome Powell cautioned that persistent inflation could lead to a more restrained approach to rate cuts in 2025. This hawkish stance lifted the U.S. dollar to a two-year high, making oil pricier for buyers using other currencies.
Concerns over slowing economic growth are expected to weigh further on oil demand next year. Brent crude prices have already fallen more than 5% this year, marking a second consecutive annual decline, as China’s sluggish economic recovery dampens crude consumption.
The broader market struggled on Thursday, with U.S. main indexes slipping as the post-Federal Reserve rally lost momentum.
The U.S. economy expanded at a faster pace than previously estimated in the third quarter, thanks to resilient consumer spending.
Following a widely anticipated 25 basis point rate cut on Wednesday, the Federal Reserve signaled a slower pace of monetary easing in the year ahead. Policymakers now project only two 25 bps rate cuts in 2025, compared to four forecasted in September. The prospect of higher interest rates for longer weighed on Wall Street, particularly the technology sector.
Micron Technology saw its shares tumble 16% on Thursday after issuing weaker-than-expected second-quarter guidance, dragging the broader chip sector lower.
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