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16/01/2025 - 08:28 UTCThe US dollar posted a moderate decline against most major currencies on Wednesday, increasing its distance from the recently hit two-year high. Recent economic data, particularly the Consumer Price Index (CPI) report, has tempered concerns about rising inflation. This has increased market expectations that the Federal Reserve may lower interest rates twice in 2024. The CPI report showed that inflation rose by 2.9% in the year ending December, meeting economists' forecasts. Moreover, core inflation, which excludes volatile food and energy prices, also aligned with expectations but was lower than the previous month. The softer-than-expected core inflation reading, combined with the Producer Price Index (PPI) data released earlier in the week, led to an immediate weakening of the US dollar.
Wall Street sentiment improved significantly on Wednesday with the main stock indices ending the session sharply higher amid signs of cooling inflation and strong quarterly earnings from the banking sector. The surprise came with the core CPI report, which rose 0.2% on a monthly basis and 3.2% year-on-year, below expectations for 0.3% and 3.3%, respectively. In addition, several major banks delivered strong quarterly earnings on Wednesday, injecting fresh momentum into the stock market rally that had been losing steam following the recent election.
JPMorgan Chase saw its stock price rise by 2% after announcing record annual profits, driven by robust performance across its trading and investment banking divisions. The bank also signaled an increase in its share buyback program. Goldman Sachs experienced a significant stock price surge of 6% following a more than doubling of its fourth-quarter profits, attributed to strong trading results. Wells Fargo also reported positive results, with a nearly 7% increase in its stock price, primarily driven by improved investment banking performance. BlackRock, a leading asset management firm, saw its stock climb by 5% after exceeding expectations on both revenue and earnings, while also achieving a record high in assets under management during the fourth quarter.
For Thursday markets will most likely be focusing on the U.S. Core Retail Sales numbers, U.S. Jobless Claims and the Philly Fed Manufacturing Index. For the week ahead, attention could shift to U.S. building permits and U.K. growth data.
The EUR/USD pair traded between gains and losses on Wednesday and ended the session with minor losses. Softer-than-expected U.S. Consumer Price Index (CPI) inflation data for December has fueled speculation that the Federal Reserve (Fed) may implement two interest rate cuts this year, putting pressure on the U.S. Dollar. However, concerns over the Eurozone’s sluggish economic growth may limit the pair's upside potential.
Key data releases later on Thursday include Germany’s Harmonized Index of Consumer Prices (HICP) for December and the ECB Monetary Policy Meeting Accounts. In the U.S., investors will focus on December’s Retail Sales figures and the weekly Initial Jobless Claims report for further market cues.
Gold advanced for a second consecutive day, driven by a sharp decline in U.S. yields following data suggesting easing core inflation. The disinflation trend has strengthened expectations that the Federal Reserve (Fed) could shift towards a more accommodative policy stance.
Market projections now suggest the Fed could implement 40 basis points (bps) of easing by the end of 2025, reflecting growing optimism around a potential shift in monetary policy.
Looking ahead, market participants will closely monitor key U.S. data releases, including Retail Sales and weekly unemployment claims, alongside remarks from Fed officials for further direction.
Oil prices surged on Wednesday, climbing more than 2%, as a sharp drop in U.S. crude inventories and concerns over potential supply disruptions stemming from new U.S. sanctions on Russia provided strong support. However, gains were tempered by a ceasefire deal in Gaza.
The U.S. Energy Information Administration reported that crude inventories fell to their lowest levels since 2022, driven by a rise in exports and a decline in imports. Meanwhile, gasoline and distillate stockpiles increased more than anticipated.
On the other hand, concerns over supply disruptions eased after Israel and Hamas reached a ceasefire agreement, which included a prisoner exchange.
U.S. stocks surged on Wednesday, with all three major indexes posting their largest daily percentage gains in over two months. The rally was fueled by softer-than-expected December core inflation data and upbeat earnings from major U.S. banks.
Earnings reports from major banks provided additional momentum. JPMorgan shares rose 2.03% after reporting record annual profits, while Wells Fargo surged 6.72% as dealmaking activity bolstered its investment banking revenue. Goldman Sachs gained 5.96%, after posting its strongest quarterly profit since Q3 2021. Citigroup also advanced 6.49% after swinging to a fourth-quarter profit.
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