Market Drivers – US Session 02/02/2023

The dollar recovered most of the ground lost in the aftermath of the Fed’s decision amid ECB and BOE monetary policy announcements. The dollar edged higher against most major rival currencies, with the JPY being its strongest rival and the GBP the weakest.

Stock markets advanced, partially limiting US Dollar gains. US Treasury yields eased from their post-Fed peaks and ended the day down.

Spot gold plunged from the $1,950 price zone and finished the day at around $1,913 a troy ounce. Crude oil prices lost some ground, but losses were moderated by the better tone of US indexes. WTI is currently changing hands at $75.80 a barrel.

Key Developments

Earlier on Thursday, the Bank of Japan Deputy Governor Mazasumi Wakatabe said there has been no change to the central bank’s determination to continue with its current monetary policy. USD/JPY finished the day at around 128.60 after extending its weekly decline to 128.07.

The Bank of England, as widely anticipated, hiked rates by 0.5 percentage points to 4%. Governor Bailey was quite optimistic, as he said that a potential recession will likely be less deep than previously expected. He also said that they would need to watch the path of inflation very closely. GBP/USD ended up falling to a multi-week low of 1.2330.

The European Central Bank also hiked by 50 bps and even confirmed another 50 bps for March. However, ECB President Lagarde said that the following decisions will be a meeting-by-meeting matter and that it will be data dependent. The EUR/USD pair trades just above the 1.0900 threshold, as investors believe terminal rates are around the corner.

According to Lagarde, Eurozone governments must start to roll back support measures aimed at cushioning the impact of energy prices to avoid fiscal largess feeding inflation.

Wall Street is rallying on Thursday, led by enthusiasm mainly stirred by tech stocks and a significant surge of Meta; Facebook’s parent company.

The S&P 500 was 1.5% higher in midday trading a day after hitting its highest level since August. The Nasdaq composite was 3.1% higher, as of 12:35 p.m. Eastern time, while the Dow Jones Industrial Average was lagging because it has less of an emphasis on tech. It was down 137 points, or 0.4%, at 33,955.

Meta was leading the way with a nearly 26% jump after it reported better revenue for Q4 than analysts expected and said it expects to spend less this year than earlier forecast.

Economic Data

There were 183,000 initial jobless claims in the week ending January 28, the weekly data published by the US Department of Labor (DOL) showed on Thursday. This print followed the previous week’s print of 186,000 and came in better than the market expectation of 200,000.

The US labour productivity rose for the second consecutive quarter in 2022’s fourth quarter, although for the year as a whole productivity posted its biggest decline in nearly five decades. Q3 productivity was revised higher, to a 1.4% increase from a previous estimate of 0.8%. Unit labour costs increased at a 1.1% pace in Q4 from the prior quarter. Annual average hourly compensation rose 4.4%, but adjusted for inflation compensation declined 3.4% in 2022 – a sign that price pressures are continuing to pinch workers’ take-home pay packets.

The US Commerce Department said on Thursday that factory orders increased 1.8% after dropping 1.9% in November, expectations indicated forecast orders would rebound 2.2%.

The week will end with the release of the US Nonfarm Payrolls report on Friday.

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