The risk profile remains upbeat, extending the previous day’s optimism, amid increasing optimism about the lowest rates from the key central banks including the US Federal Reserve (Fed), European Central Bank (ECB) and the Bank of England (BoE) in 2024. Adding strength to the risk-on mood could be China’s determination for more stimulus, as well as a lack of risk-negative headlines from the Middle East and Ukraine.
In addition to the broad optimism, downbeat US data also weakened the US Dollar, especially amid the multi-month low Treasury bond yields and firmer equities.
The greenback’s weakness propels EURUSD to the highest level since late July while allowing the GBPUSD to poke the August 10 peak. On the same line, AUDUSD prints a 5.5-month high whereas USDJPY drops to a five-month low.
Elsewhere, Gold rises to the highest level in three weeks while crude oil picks up bids to reverse the previous day’s retreat from the weekly top. Further, Wall Street defends the Santa rally whereas the Asia-Pacific shares outside Japan remain firmer.
It should be noted that the BTCUSD remains mildly bid but the ETHUSD rises to the highest level since May 2022 as spot ETF optimism joins a technical breakout.
Following are the latest moves of the key assets:
On Wednesday, the downbeat US data bolsters hopes of witnessing the Fed’s aggressive rate cuts and joined strong equity performance to drown US Dollar.
That said, the US Richmond Fed Manufacturing Index dropped to a seven-month low of -11.0 from -5.0 prior and versus -4.0 market forecasts.
With this, the US Dollar Index (DXY) dropped to the lowest level since late July while tracking a five-month-low 10-year Treasury bond yields, pressured around 100.80 by the press time. On the same line, the US one-year and two-year Treasury bond yields slide to the levels last seen in May.
Further, Bank of Japan (BoJ) Governor Kazuo Ueda crossed wires via Japanese media NHK on Wednesday while citing the odds of moving rates out of the negative territory. The same joined upbeat prints of Japan’s preliminary reading of Industrial Production for November, to 5.3% YoY from 1.1% prior, as well as the strong Retail Trade growth of 5.3%, compared to 5.0% expected and 4.1% prior, to drown the USDJPY pair.
Elsewhere, China’s interim report on the 14th five-year plan cleared the nation’s intention to enhance domestic demand to expedite economic recovery and promote stable growth, which in turn bolstered the market’s risk-on mood and offered additional help to the commodities and Antipodeans.
It’s worth noting that the US Dollar’s weakness allowed the EURUSD and GBPUSD traders to ignore economic pessimism surrounding the Eurozone and the UK, as well as the ECB and the BoE officials’ hints for rate cuts in 2024.
The holiday season and a light calendar in Europe may restrict the market’s moves during early Thursday. However, a slew of US economics comprising the weekly jobless numbers and the monthly prints of the Goods Trade Balance, as well as the Pending Home Sales, will entertain the momentum traders. Even so, the scheduled data are of the second tier in nature and may only provide intermediate relief to the US Dollar even if they post strong numbers. Hence, the greenback is all set to snap a two-year winning streak in 2023 but the soft-landing concerns could defend the US Dollar bulls in early 2024 if the Fed hesitate cutting rates.
May the trading luck be with you!