Market Drivers – US Session – 31/05/2023

The cautious sentiments across financial markets heavily weighed on Wall Street indexes that lost ground again on Wednesday. Equity prices finished off their lows. The rebound in stocks weighed on the US dollar, which was also affected by comments from Fed officials that signaled a preference for a pause at the next FOMC meeting. A positive outcome of the debt-limit drama is expected from the ongoing debate in the US Congress.

 Economic Data

US employment data (JOLTS report) kept the door open to another rate hike. On Thursday, the ADP employment report and the weekly Jobless Claims will be watched closely. The key report will be on Friday with Nonfarm Payrolls. The Beige Book indicated that “economic activity was little changed overall in April and early May”.

Inflation data from Germany and France showed a decline in annual rates. On Thursday, the same is expected from the Eurozone Consumer Price Index (CPI). The Euro weakened following inflation figures. Market participants and European Central Bank (ECB) officials still expect rate hikes, but tightened expectations eased. The EUR/USD bottomed at 1.0630 and then rebounded, driven by a broad-based correction of the US Dollar. The pair rebounded towards 1.0700. The trend is down, but the bearish momentum has abated.

Key Developments

The US Dollar Index (DXY) rose 0.15% on Wednesday, ending far from its peak. The DXY hit a two-month high at 104.70 and then pulled back to 104.20.

USD/JPY dropped for the third consecutive day, falling below 139.50. Lower government bond yields in Europe and the US continue to support the Japanese Yen. Additionally, comments from Japanese officials regarding Yen strength are helping the currency.

The Sterling continues to perform well as more rate hikes are expected from the Bank of England to curb inflation. GBP/USD finished at a daily high after erasing losses, climbing toward 1.2450. EUR/GBP accelerated to the downside, falling for the fourth consecutive day. The cross closed below 0.8600, the weakest since December.

During the American session, the Canadian Dollar outperformed, supported by better-than-expected Canadian data. Real Gross Domestic Product grew at an annual rate of 3.1% in Q1, surpassing the expected 2.5% and recovering from a 0.1% contraction in Q4.  April advance GDP rose 0.2%. Those numbers increased the odds of a rate hike from the Bank of Canada next week. USD/CAD posted the lowest close in a week around 1.3570. Again, the pair ran into resistance at the 1.3650 area. The short-term outlook is starting to favor the downside.

The Turkish Lira was again the worst performer as it continued to depreciate after Erdogan’s victory at the presidential elections. USD/TRY reached new record highs above 20.70. A week ago, it was trading at 19.70.

Gold rose moderately on the back of lower yields but pulled back to $1,960 after reaching $1,974. Silver rose to its highest in a week above $23.50. Cryptocurrencies lost ground, with BTC/USD falling 2.35% to $27,120. Crude oil prices continued to trend lower, affected by the gloomy economic outlook, losing more than 2%.

Also Read:

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Following German data, EUR/GBP falls below 0.8600

Republican leader anticipates debt ceiling bill passing

Fed’s Beige Book: Economic activity was little changed overall in April, early May

Intel makes big moves after earlier Wall Street’s declining performance

Deepened global recession worries impact crude oil

US Dollar regathers momentum after job openings data, hopes on debt deal