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USD gains amid Fed rate cut speculations

Wednesday, May 22, 2024

Today’s headlines

What’s happening: The US dollar index moved higher on Tuesday, as investors assessed comments from Federal Reserve officials.

What happened: With the US economy exhibiting resilience and inflation remaining sticky, the Fed has been hesitating from cutting interest rates.

While the US dollar remained strong, the USD/JPY forex pair edged lower on Tuesday.

Why it matters: Even amid sticky inflation, Fed Governor Christopher Waller said that interest rate hikes seem unlikely. He added that inflation remains on course to meeting the Fed’s target of 2%. Waller continued to maintain a hawkish tone and remained hesitant to support interest rate cuts.

Meanwhile, President of the Federal Reserve Bank of Atlanta, Raphael Bostic, warned against cutting interest rates prematurely.

Earlier this month, Fed chief Jerome Powell, after the US central bank kept interest rates unchanged earlier during the month, also ruled out hikes in interest rates.

The Commodity Futures Trading Commission (CFTC) released data showing that larger forex speculators had continued to go long on US dollar futures. Traders widely expect the Federal Reserve to not cut rates before September.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.1% to reach 104.66 on Tuesday.

The USD/JPY fell around 0.1% to 156.18. The Japanese yen has remained under pressure so far in 2024, hitting its lowest level in 34 years in late April.

The EUR/USD edged lower to 1.0855, while the GBP/USD forex pair rose by 0.03% to 1.2710.

What to watch: Investors will continue monitoring comments from Fed officials. Investors also await the release of FOMC minutes on Wednesday, which will provide further insights into the central bank’s future monetary policy.

Data on initial jobless claims, manufacturing and services PMI from the US will also remain in focus this week. US jobless claims, which declined by 10,000 to 222,000 in the week ending May 11, are expected to fall further to 220,000 in the recent week. The S&P Global US manufacturing PMI, which declined to 50 in April, is expected to remain unchanged in May. Analysts expect the services PMI to also remain unchanged at 51.3 in May.

The Personal Consumption Expenditures price index report, which is the Federal Reserve’s preferred gauge to measure inflation, will be released on May 31.

The markets today

UK stocks will be in focus today ahead of inflation data

Context: London’s FTSE 100 closed lower, settling at a one-week low in Tuesday’s trading session.

Details: Investors continued monitoring the monetary policy outlook from the Bank of England. They keenly awaited the release of consumer prices index data due today, to get further insights into the central bank’s next move.

AstraZeneca’s shares rose around 2.2% on Tuesday, after the company projected revenues to grow to $80 billion by 2030. Gains in AstraZeneca’s shares were offset by losses in the automobile and parts sector, which lost around 4% on Tuesday to record the biggest sectoral decline. Shares of Dowlas Group were down more than 6% during the session, after the company warned of lower revenue for the year. Almost half of the sectors settled the session on a negative note on Tuesday. SSP Group’s shares fell around 9% after the company reported weaker-than-expected EBITDA for the first half of the year.

London’s FTSE 100 slipped 0.09% to close at 8,416.45 on Tuesday, while the domestically oriented FTSE 250 Index dipped 0.43% to settle at 20,783.37.

What to watch: Investors await the release of economic reports on inflation rate, producer prices, retail price index and public sector net borrowing from the UK today. The UK’s inflation rate, which declined to 3.2% year-over-year in March, is expected to ease further to 2.1% in April.

Analysts expect factory gate prices of goods produced by manufacturers to increase 0.4% in April, following a 0.2% gain in March. The Retail Price Index, which increased 4.3% year-over-year in March, is projected to rise 3.3% in April.

Other Markets: US trading indices closed higher on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.17%, 0.25% and 0.21%, respectively.

The news shaping the markets

The EU nations have formally adopted a plan to use windfall profits from frozen Russian assets in the region to provide help for Ukraine. However, the RUB/USD rose in forex trading this morning.


The Reserve Bank of New Zealand maintained its official cash rate at 5.5% at its recent policy meeting, lending support to the NZD/USD forex pair.


Japan’s trade deficit widened to ¥462,50 billion in April, from ¥429,79 billion in the year-ago month. The latest reading also came in higher than market expectations of ¥339.5 billion, sending the JPY/USD pair lower in forex trading this morning.


South Korea’s Business Survey Index for the manufacturing sector rose to 74 in May, from 73 a month ago. The latest reading being the highest since November 2022 lent support to the KRW/USD forex pair.


The American Petroleum Institute said that US crude oil inventories rose by 2.48 million barrels in the week ending May 17, compared to a decline of 3.104 million barrels in the earlier week, which sent WTI crude oil prices lower this morning.

What else to watch today

European Union’s new passenger car registrations and ECB non-monetary policy meeting, Indonesia’s loan growth and Bank Indonesia’s interest rate decision, South Africa’s inflation rate, US MBA mortgage applications, existing-home sales, crude oil inventories, gasoline stocks and distillate inventories, Russia’s producer price inflation, China’s foreign direct investment, as well as Argentina’s leading economic index and economic activity estimator.


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