Market Drivers – US Session, December 11

Mohamed Abdelhamid 13 December, 2023 1:12 am Commodities, Forex Market, Market Update

On Wednesday, all eyes will be on the Federal Reserve and Chair Powell. During the Asian session, New Zealand will disclose current account figures, and Japan will release the Tankan survey. The Producer Price Index (PPI) will provide more inflation data in the United States.

On Wednesday, the Federal Reserve will conclude its December meeting. Rates are not expected to change, and the guidance is expected to remain unchanged. Market investors will closely monitor the latest macroeconomic forecasts and statements from Chair Jerome Powell, which could impact rate expectations for the coming year.

This week, the Fed is widely expected to hold interest rates unchanged. Jerome Powell will have to walk a delicate line between acknowledging the progress made towards economic normalization and opposing early rate cuts. We anticipate the chairman to lean against the Committee’s expected dovish advice at 2 p.m., with cautious hawkishness in the post-meeting press conference.

Economic Data

The Producer Price Index (PPI) for November is predicted to show a 0.1% month-over-month increase and an annual rate of 1%, both of which are lower than the 1.3% recorded in October.

The US Consumer Price Index (CPI) release on Tuesday was in line with market expectations. The CPI climbed 0.1% in November, while the annual rate was 3.1%, down from 3.2% in October. The core rate rose by 0.3%, but the annual rate stayed unchanged at 4%.

The underlying inflationary pressure is thus decreasing, but only gradually. In view of these trends, it is unlikely that the Federal Reserve will raise interest rates again. However, a rate cut is also not realistic until mid-2024.

Key Developments

Following inflation numbers, the US dollar fell and then recovered. The US Dollar Index (DXY) fell slightly ahead of the Fed’s final decision of the year. The DXY is facing resistance near 104.30 and is trading sideways. The limited price action in the bond market contributes to the US Dollar’s overall performance. Ten-year Treasury yields declined from 4.23% to 4.20%.

On Tuesday, the EUR/USD gained but failed to remain above 1.0800. The short-term view is optimistic, but without firm certainty. The European Central Bank (ECB) will announce its monetary policy decision on Thursday, with no changes in interest rates predicted.

USD/JPY lost ground but trimmed losses after US CPI data, consolidating above 145.50. The Tankan survey is due on Wednesday, with mixed numbers expected.

GBP/USD continues to trade around 1.2550 and the 20-day Simple Moving Average (SMA). The UK will report monthly gross domestic product growth for the three months ending in October and industrial production data. On Thursday, the Bank of England (BoE) will announce its decision on monetary policy.

NZD/USD still holds above key moving averages and remains in the 0.6100 zone. The Food Price Index and Current Account figures for the third quarter are due on Wednesday, and GDP data will be released on Thursday.

AUD/USD dropped modestly, reaching levels below 0.6550 after briefly surpassing 0.6600. It continues to move without a clear direction.

Gold spiked to $1,996 after US inflation data but quickly attracted fresh selling pressure, pulling back to the $1,980 zone. The yellow metal is not shining. A less hawkish Fed could trigger a recovery rally.

Crude Oil prices resumed the downtrend after a three-day recovery. WTI lost more than 3.50% and posted the lowest close since June, dropping below $69.00.

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