FOREX
In early Thursday trading, the US dollar edged up as traders fixated on next Wednesday's release of US inflation data. Following last week's unexpected deceleration in the labour market and the Federal Reserve's unanticipated dovish stance at its policy meeting, currency markets recalibrated expectations regarding rate cuts, with two cuts in 2024 now seen as likely. In this context, the forthcoming US inflation report holds significant importance. Forecasts suggest a slowdown in inflation, a scenario that would reinforce the prevailing consensus of two rate cuts this year, likely leading to a gradual but consistent decline in the dollar over the next two quarters. Conversely, if consumer prices surpass expectations, bolstering the narrative of persistent inflation, we can anticipate a more hawkish stance from the Fed, reducing expectations for a 2024 rate cut and strengthening the dollar further.
Ricardo Evangelista – Senior Analyst, ActivTrades
Source: ActivTrader
EUROPEAN SHARES
Equities slid slightly lower on Thursday, with benchmarks taking a rally break ahead of US data and BoE rate decision today. The STOXX-50 failed to clear its short-term resistance at around 5,045pts, driven lower this morning by losses from consumer cyclicals and financial shares, as investors wait for more key macro developments today.
Today’s batch of positive Chinese trade data didn’t significantly impact market sentiment, and investors chose to take some of their weekly profits out, bracing for the US initial jobless claims and a crucial decision on rates in the UK. While the BoE is widely expected to hold its key interest rates at their current level (5.25%), investors will cautiously look for hints regarding the outlook of quantitative tightening within the MPC meeting minutes, which could significantly affect market sentiment towards the pound sterling as well as UK stocks.
Indeed, the BoE’s determination to clear its balance sheet of bonds has significantly impacted sterling and FX markets as a whole so far. The recent weakness in sterling has significantly supported appetite for large exporting groups listed on the FTSE-100 index, which is now trading at an all-time high above 8,350pts.
The market currently trades above a short-term bullish trendline, but the recent failure to clear the 8,382pts level, driven lower by banking shares, may be the sign that a pull-back is now on its way for UK equities. The BoE’s decision will likely set the tone, and we expect market volatility to progressively increase throughout today’s trading session.
Pierre Veyret – Technical analyst, ActivTrades
Source: ActivTrader
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