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What’s happening: The US dollar recorded sharp gains on Wednesday as investors assessed the latest economic reports.
What happened: Data released on Wednesday showed that the US economy contracted in the first quarter, but by a lower rate than was projected by some of the biggest banks.
Another report showed an increase in US consumer spending and income, along with an easing in annual inflation, which provided a boost to the greenback.
Why it matters: The US dollar came under pressure earlier in the session after the ADP report showed growth in private payrolls eased more than market expectations in April. Private payrolls rose by 62,000 jobs in April, following a surge of 147,000 in the previous month. April’s figure was much lower than market expectations of 115,000 job adds.
The Commerce Department released its first estimate of US GDP growth. This showed that US gross domestic product declined by 0.3% in the first quarter, following 2.4% growth in the previous quarter. The US economy was impacted by a jump in imports ahead of tariffs being levied by the Trump administration. Pre-tariff imports climbed 41.3% during the first three months of 2025.
The GDP contraction was better than Goldman Sachs’ projection of a 0.8% decline and JPMorgan’s 1.75%.
However, consumer spending remained resilient in the first quarter, with spending on services, mainly on healthcare, rising 2.4%.
US personal income rose 0.5% in March, while spending grew by 0.7%, both coming in above market expectations.
The PCE Price Index, which is the Fed’s preferred gauge to measure inflation, rose 2.3% in the 12 months through March, easing from 2.7% in February. Annual core inflation also slowed from the previous month, rising 2.6% versus 3.0% in the previous month.
The PCE inflation data release triggered speculations of an interest rate cut by the Federal Reserve in June and a total reduction of 100 basis points in 2025, which would bring the policy rate to the 3.25%-3.50% range by yearend.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained more than 0.3% to reach 99.47 on Wednesday.
The USD/JPY rose sharply to 143.06 on Wednesday, while the EUR/USD pair fell around 0.5% to 1.1332.
Despite Wednesday’s gains, the greenback closed April with losses, as investors moved away from the US dollar on tariff-led inflation and growth concerns. The US dollar recorded its largest monthly loss versus the Japanese yen since July 2024, while the Euro notched its biggest monthly surge versus the US dollar since November 2022.
What to watch: Investors will continue monitoring announcements related to tariffs from the US. Markets also await the release of data on initial jobless claims (1630 UAE Time), ISM manufacturing PMI (1730 UAE Time) and construction spending (1800 UAE Time) from the US today.
Initial jobless claims in the US, which rose by 6,000 to 222,000 during the third week of April, are expected to rise to 224,000 in the latest week. Analysts expect the ISM manufacturing PMI to decline to 48 in April, from 49 in March, while construction spending is expected to increase 0.2% in March, following a 0.7% gain in February.
Context: Prices of crude oil remained almost flat this morning after recording its biggest monthly plunge since 2021.
Details: Data released by the Energy Information Administration on Wednesday showed crude oil inventories in the US declined by 2.696 million barrels during the week ended April 25, compared to market estimates of a gain of 0.39 million barrels.
Stockpiles in the Cushing, Oklahoma, delivery hub rose by 682,000 barrels. Gasoline stocks dipped by 4.002 million barrels, while distillate stocks rose by 0.937 million barrels last week.
Oil prices fell sharply on Wednesday on reports of Saudi Arabia looking to produce more and increase its market share. The OPEC+ (Organization of the Petroleum Exporting Countries and its allies) is scheduled to meet on May 5 to discuss production plans.
Oil prices remained under pressure through April on tariff announcement by US President Donald Trump and fears of a trade war between the world’s two largest economies.
Brent crude dipped around 15% in April, while WTI tumbled 18%, recording the largest monthly percentage downturn since November 2021.
WTI crude oil prices were flat at $58.21 a barrel this morning, while Brent crude edged higher to $61.12 a barrel.
What to watch: Investors await the release of data on EIA natural gas stockpiles change (1830 UAE Time) today. US natural gas inventories, which grew 88 billion cubic feet during the week ended April 18 to 1.934 trillion cubic feet, are expected to rise by 111 billion cubic feet in the latest week.
Other Markets: European indices closed higher on Wednesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index up by 0.37%, 0.32%, 0.50% and 0.46%, respectively.
The US and Ukraine signed a vital minerals agreement following months of negotiations. The news sent the RUB/USD pair lower in forex trading this morning.
Australia’s export prices rose by 2.1% in the first quarter. Export prices rising for the second consecutive quarter lent support to the AUD/USD forex pair.
The Central Bank of Colombia cut its benchmark policy rate by 25 bps to 9.25%, sending the COP/USD pair lower in forex trading this morning.
Chile’s industrial production grew by 4.5% year-over-year in March, following a 3.6% decline in the previous month, which lent support to the CLP/USD forex pair.
South Korea’s trade surplus widened to $4.88 billion in April, from $1.53 billion in the year-ago month. However, the KRW/USD pair fell in forex trading this morning.
UK’s mortgage approvals (1230 UAE Time), mortgage lending (1230 UAE Time), M4 money supply (1230 UAE Time), net lending to individuals (1230 UAE Time), S&P Global manufacturing PMI (1230 UAE Time) and BoE consumer credit (1230 UAE Time), US Challenger job cuts (1530 UAE Time), continuing jobless claims (1630 UAE Time), S&P Global manufacturing PMI (1745 UAE Time), ISM manufacturing employment (1800 UAE Time), ISM manufacturing new orders (1800 UAE Time) and ISM manufacturing prices (1800 UAE Time), as well as Canada’s S&P Global manufacturing PMI (1730 UAE Time).
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