Market Drivers – US Session – 24/05/2023

Mohamed Abdelhamid 25 May, 2023 2:53 am Commodities, Forex Market, Market Update

Traders and investors are digesting the latest economic data and the FOMC minutes while awaiting news regarding the US debt-ceiling fight. No major reports are due in the Asian session. Later in the day, Germany and the US will release new estimates for Q1 GDP. The weekly Jobless Claims report is also due in the US.

On Wednesday also, Fed’s Raphael Bostic said “I expect to see stress in the jobs market when inflation is falling toward target”. Bostic added that FOMC will base its interest rate decisions on data and that Fed does not want to be locked into a pre-determined rate path. He also noted that it is problematic for the economy if the Fed doesn’t achieve 2% inflation target. The EUR/USD pair remained negative around 1.0747 following these remarks, down for the third consecutive day to around fresh two-month lows.

Earlier on the day, Fed’s Waller said that there is need to maintain flexibility on best policy decision for FOMC meeting in June.

Gold reversed its gains, dropping from $1,985 back below $1,960 and remaining under pressure. Silver also experienced a decline and was testing the $23.00 level. Cryptocurrencies witnessed a sharp drop, with Bitcoin falling over 3% and settling around $26,300.

Key Developments

The unresolved issue of the debt ceiling remains a concern for investors as negotiations continue in Washington without reaching a deal.

The US Dollar Index rose for the third consecutive day and recorded its highest daily close since March 17, just below 104.00. The ongoing risk aversion sentiment continues to support the US Dollar. Wall Street indexes experienced another drop, with the Dow Jones falling 0.77% and reaching its lowest level since late March.

Minutes from the latest FOMC meeting revealed a split among policymakers regarding the future path of monetary policy tightening. Some members highlighted the need for further rate hikes, while others argued that additional tightening may not be necessary after this meeting. The US Dollar maintained its gains following the release of the minutes. On Thursday, economic reports from the US will include the weekly Jobless Claims, a new Q1 GDP estimate, the Chicago Fed National Activity Index, and Pending Home Sales.

USD/JPY broke above 139.00 and jumped to 139.40, reaching its highest level in almost six months. This surge was driven by higher US bond yields, which strengthened the US Dollar against the Japanese Yen. On Friday, Japan will release inflation data.

The Reserve Bank of New Zealand (RBNZ) raised interest rates by 25 basis points to 5.5% and signaled an end to monetary policy tightening. As a result, the Kiwi tumbled, extending its losses throughout the day. The currency was the worst performer, with NZD/USD losing over a hundred pips and falling to 0.6100. Meanwhile, AUD/NZD surged above 1.0700.

AUD/USD also succumbed to the strength of the US Dollar and was further dragged down by the Kiwi’s decline, technical factors, and a slide in commodities. Breaking through the 0.6570/80 support area, the pair plummeted to as low as 0.6528.

USD/CAD finally broke out of its consolidation phase and experienced a bullish move towards 1.3600 after several days. The upside was limited by another increase in crude oil prices, with the WTI barrel rising 1.40% to $74.00.

Economic Data

In the UK, data showed that inflation dropped to 8.7% in April, the lowest level since March 2022, but still higher than the market consensus of 8.2%. GBP/USD staged a short-lived recovery but then continued its downward movement, falling to one-month lows near 1.2360.

EUR/USD continued to drop, hitting two-month lows below 1.0750. The pair is currently trading below the 20-week Simple Moving Average for the first time since November. On Thursday, Germany will report a new estimate of Q1 GDP.

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