27/05/2024 - 07:59 UTCThe U.S. dollar took a step back on Friday, losing some ground against most major currencies following several consecutive days of gains, with the dollar index (USDX) giving back 0.29% of its gains. Despite a series of hawkish comments by Fed officials the dollar received some pressure by data indicating a slowdown in consumer price rises in April and confirming the trend could pull it further down.
Expectations for the first rate reduction have shifted from September to November with CME Fedwatch tool showing bets for the first rate cut to occur in September dropping from 49.7% to 44.9% while November bets currently stand at 47%.
On the energy front, the two main benchmarks WTI and Brent recovered by 1.16% and 0.74% respectively on Friday, as recent inflation numbers were supportive of a possible rate cut in the upcoming Fed meetings. Public holidays in the U.S. and UK on Monday are expected to keep trading relatively thin while focus now turns to OPEC+ and whether it will cut production as much as expected in the third quarter of this year. OPEC has said it expects another year of relatively strong growth in oil demand of 2.25 million bpd, while the International Energy Agency expects much slower growth of 1.2 million bpd.
Wall street seems ended the week on a positive note, with both the US 500 and the US tech 100 recovering a large chunk of the losses seen in the previous session supported by positive earnings, particularly from NVIDIA Corporation, while the US 30 declined sharply on fears of higher for longer interest rates. Focus this week turns to key PCE inflation data for more cues on US monetary policy.
For Monday, investors expect a rather quiet session due to Memorial Day in the US and the Spring Bank holiday in the UK while later this week, focus could turn to several key releases, among which are US consumer confidence data, US pending home sales, jobless claims and the Fed’s favorite inflation gauge the Core PCE price index.
The EUR/USD pair strengthen on Friday ending the session 0.34% higher. The strength in the major currency pair was driven by strong Eurozone preliminary Purchasing Managers Index (PMI) data for May. The strong Composite PMI has improved the Eurozone’s economic outlook, but the likelihood of the European Central Bank (ECB) lowering interest rates in the short term remains firm.
On Friday, US Durable Goods Orders increased by 0.7% MoM in April from the downward revised 0.8% in March, stronger than -0.8% expected. Meanwhile, the University of Michigan Consumer Sentiment Index improved to 69.1 in May from 67.4 in April, better than the estimated 67.5.
The ECB policymaker Piero Cipollone said on Sunday that the time is right for an interest rate cut in June as the recent data moved in the right direction. Meanwhile, ECB President Christine Lagarde said that she is "really confident" that Eurozone inflation was under control and an interest-rate cut is probable next month.
Gold prices rose on Friday as the dollar slipped but was the worst week in five and a half months as hopes of interest rate cuts by the U.S. central bank tamed.
Minutes from the Federal Reserve's last meeting published this week showed the central bank's path to 2% inflation could take longer than expected.
Traders' bets signalled growing doubts that the Fed will cut rates more than once in 2024, currently pricing in about a 63% chance of a rate cut by November according to the CME FedWatch Tool.
Oil prices rose about 1% on Friday but fell for the week on worries that strong U.S. economic data would keep interest rates elevated for a longer period, curbing fuel demand. Worries over Federal Reserve interest rate policy and last week's bump in US crude oil inventories weighed on market sentiment.
Meanwhile, the market is awaiting a June 2 online meeting of the OPEC+ producer group comprising the Organization of the Petroleum Exporting Countries and its allies to discuss whether to extend voluntary oil output cuts of 2.2 million barrels per day.
U.S. stocks rebounded on Friday from sharp losses the day before on news of an improving consumer outlook on inflation, sending the US Tech 100 to a fifth straight week of gains and record closing high. US 500 and US 30 did not manage to recover the weekly losses and ended the week with losses.
The Commerce Department said new orders for key U.S.-manufactured capital goods rebounded more than expected in April while the University of Michigan reported that consumers' inflation expectations improved in late May after deteriorating early in the month.
With earnings season largely wrapped up, 77.9% of the 480 companies in the US 500 that have reported earnings have topped analysts' expectations, LSEG data showed.
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