15/09/2023 - 07:55 UTCThe U.S. dollar gained against most of its peers on Thursday, with the dollar index (USDX) up by 0.56% posting new six-month highs close to the 105.5 mark. Price action is becoming more intense following the solid U.S. economic data on retail sales and a rate hike to record levels by the ECB that prompted a drop in European yields.
The European central bank, following its announcement, gave indications that this might be the end of its rate-hiking cycle as economic growth slows down. Central bank officials also stated that key interest rates have reached levels which, if sustained for a sufficiently long duration, will contribute significantly to inflation returning to target levels.
Global market sentiment get a positive push from China after data released on Friday showed Chinese industrial production and retail sales grew more than expected in August. This comes after an announcement from the People’s Bank of China that it will cut the reserve requirement ratio for local banks by 25 basis points, in order to release more liquidity into the Chinese economy and potentially shore up economic growth.
Energy prices surged on Thursday, with both Brent and WTI up by more than 2% for the day. The move was possibly supported by news of more stimulus measures as well as the better-than-expected economic data from major importer China which creates a positive global demand outlook.
Wall street had another positive session yesterday, with all the main US stock indices closing in the green and specifically, the US 500 was up by 0.77%, the US tech 100 rose by a sharp 0.63%, and the US 30 added 0.98% to its value. Part of the move could be attributed to rising expectations that central banks are approaching peak interest rate levels and that some monetary easing could now be an option.
For Friday, ECB’s President Lagarde will hold a press conference and later in the session, eurozone trade balance data are due along with U.S. Empire State Manufacturing Index, monthly import prices, monthly industrial production numbers and data on consumer sentiment.
The Euro retreated after the European Central Bank’s 25 basis points rate hike. On the other side, US data surpassed expectations. The EUR/USD pair resumed its downtrend, posting 0.91% daily losses.
The ECB delivered a 25 basis point rate hike. Some analysts expected a pause, and as Lagarde mentioned, some members of the Governing Council also preferred that. However, the interest rate hike did not boost the Euro; instead, it fell sharply on expectations that it would be the last one.
The US Dollar strengthened during the American session after the release of US economic data that showed a larger-than-expected increase in the Producer Price Index in August, along with an upbeat retail sales report.
Gold prices held near a three-week low on Thursday after higher-than-expected U.S. producer prices and retail sales data raised worries U.S. interest rates are likely to stay higher for longer, boosting the dollar and bond yields.
Data showed U.S. producer prices increased by 0.7% in August, the most in more than a year, while U.S. retail sales increased by 0.6% over Reuters’ expectation of 0.2% during the same period.
Oil prices climbed on Thursday to their highest this year, as expectations of tighter supply outweighed worries about weaker economic growth and rising U.S Crude inventories.
Moreover, China’s bid to put a floor under its ailing economy has unwittingly given an instant boost to oil prices. The People’s Bank of China said it will lower from Friday the reserve requirement ratio for banks in the country by 25 basis points for a second time this year, bringing the weighted average for the so-called RRR for banks to 7.4%.
Moreover, the increase in retail sales in U.S, incidentally, was a result of Americans spending more on gasoline last month, leading to the notion that they will continue doing so regardless how high prices at the pump go.
U.S main indexes ended higher on Thursday as hotter-than-expected economic data eased worries about a recession without raising fears of a Federal Reserve rate hike next week. The US 500 and US Tech 100 posted gains of 0.77% and 0.98% while US 30 experience an impressive rally recording a surge of over 300 points the highest one-day increase in more than five weeks.
U.S. retail sales have consistently displayed robust growth, with data showing a steady rise for the fifth consecutive month in August.
Ahead in Friday's trade, investors will be monitoring import and export price index data, NY Empire State manufacturing index, industrial production, as well as preliminary Michigan consumer sentiment and expectations.
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