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US dollar recovers following GDP report

 

Thursday, November 30, 2023

Today’s headlines

What’s happening: The US dollar recovered slightly on Wednesday, after recording losses for four days.

What happened: Data released on Wednesday showed the world’s biggest economy expanding faster than expected during the third quarter.

However, the greenback remained on course to recording its biggest monthly decline in a year.

Why it matters: The US dollar rose from its weakest level in over three months during Wednesday’s session, following the release of GDP data.

GDP growth figures were revised higher for the third quarter, showing that the US economy had expanded at an annualised pace of 5.2%, above the preliminary reading of 4.9%. The figure also topped market estimates of 5% growth. The latest release also marked the strongest GDP growth since the fourth quarter of 2021.

While the healthy US GDP growth data supported the greenback, it also spurred speculations of the Federal Reserve announcing a rate cut as early as March, which limited the gains in the currency. Comments from Fed Governor Christopher Waller signalling prospects of a rate cut in the months ahead had triggered a US dollar sell-off.

Investors also monitored other economic reports from the US. The US trade deficit in goods widened to $89.8 billion in October, from $86.8 billion a month ago. Wholesale inventories slipped by 0.2% in October.

Despite some gains, the US dollar remained close to its weakest level not seen since mid-August and is on course to closing the month with around 3.5% losses, its biggest monthly decline in a year.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained slightly to 102.77 on Wednesday. The index fell to its weakest level since early August at 102.46, earlier during the Asian session.

The EUR/USD forex pair shed more than 0.2% to 1.0970 on Wednesday, following inflation data from Europe’s biggest economy, Germany. The data showed consumer price inflation easing to 3.2% year-over-year in November, from 3.8% in the previous month.

The NZD/USD gained on Wednesday, after the Reserve Bank of New Zealand kept interest rates unchanged at its latest meeting but warned of further policy tightening.

What to watch: Investors await the release of economic data on jobless claims and core PCE price index, the Fed’s preferred gauge to measure inflation, on Thursday. The number of people filing for unemployment benefits, which declined by 24,000 to 209,000 in the week ending November 18, is expected to increase to 213,000 in the latest week. Analysts expect US core PCE price index to rise by 3.5% year-over-year in October, compared to 3.7% in September.

The markets today

UK stocks will be in focus today after closing lower on Wednesday

Context: London’s FTSE 100 index fell for the third day in a row, following hawkish remarks from Bank of England Governor Andrew Bailey.

Details: Andrew Bailey said that the Bank of England will do “what it takes” to bring down inflation to its 2% target. “We are not in a place now where we can discuss cutting interest rates – that is not happening,” Bailey said in an interview with Daily Focus.

Shares of insurance heavyweights Aviva and Prudential moved lower on Wednesday, following bearish comments from brokerage firms. The life insurance sector declined around 1.7% on Wednesday, after Prudential’s shares tanked around 3.3% and Aviva’s stock fell more than 2%.

Shares of precious metal miners climbed amid the continuous rise in gold prices.

On the economic data front, UK’s mortgage lending declined for the second consecutive month in October, while mortgage approvals rebounded. Consumer credit in the UK increased by £1.289 billion in October, versus a revised £1.370 billion a month ago.

The blue-chip FTSE 100 fell 0.43% to close at 7,423.46, while the domestically focussed FTSE 250 index gained 0.44% to settle at 18,467.58 on Wednesday.

What to watch: With no major economic reports due for today, investors will watch data on Nationwide house price index and manufacturing PMI from the UK on Friday. The Nationwide House Price Index, which increased by 0.9% in October, is expected to rise by 0.4% in November. The S&P Global/CIPS manufacturing PMI is projected to increase to 46.7, from 44.8 in October.

Other Markets: US trading indices closed mixed on Wednesday, with the S&P 500 and Nasdaq 100 down by 0.09% and 0.14%, respectively, and the Dow Jones index up by 0.04%.

The news shaping the markets

Russia’s Defence Ministry said its military forces have seized control of a village in the Donetsk area, which sent the RUB/USD pair higher in forex trading this morning.


Singapore bank loans rose to S$791.5 billion in October, from S$787.6 billion a month ago, which lent support to the SGD/USD forex pair.


China’s official NBS non-manufacturing PMI fell to 50.2 in November, from 50.6 in the previous month. However, this marked the 11th straight month of expansion in the service sector and sent the CNY/USD pair higher in forex trading this morning.


Japan’s industrial production rose by 1.0% in October, compared to a 0.5% increase in the prior month. This also topped market estimates of 0.8% growth and lent support to the JPY/USD forex pair.


New Zealand’s ANZ Business Outlook Index rose sharply to 30.8 in November, from 23.4 in the prior month. This being the strongest reading since March 2015 sent the NZD/USD pair higher in forex trading this morning.

What else to watch today

Germany’s retail sales, number of unemployed individuals, unemployment change and jobless rate, Turkey’s GDP growth rate, foreign exchange reserves and MPC meeting summary, France’s consumer price inflation, producer price inflation and GDP growth rate, Eurozone’s inflation rate, unemployment rate and European Central Bank General Council Meeting, Italy’s jobless rate and inflation rate, Spain’s current account, South Africa’s producer price inflation and balance of trade, India’s GDP growth rate, infrastructure output, money supply M3 and central government budget value, Brazil’s unemployment rate, Canada’s CFIB business barometer long-term optimism index, average weekly earnings and GDP growth rate, Mexico’s unemployment rate, US personal income, personal spending, continuing jobless claims, Chicago business barometer, pending home sales and natural gas stocks change, Argentina’s consumer confidence indicator, as well as Russia’s money supply M2.


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