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U.S. Markets Gain as Fed Rate Pause Looms; Dollar Weakens Amid Mixed Economic Indicators

Market Update - Daniel Ang The Accidental Trader Traders Academy International 10

Wall Street closed higher on Wednesday, buoyed by signs of a decelerating U.S. economy that bolstered expectations the Federal Reserve may halt rate increases in its upcoming September meeting. Lackluster data from the ADP National Employment Report implied a waning labor market, supported by Tuesday’s JOLTS numbers, which revealed a drop in the number of Americans opting for job transitions.

The Dow advanced marginally by 0.1%, while the S&P 500 and the Nasdaq increased by approximately 0.4% and 0.5% respectively. In the meantime, Q2 GDP growth estimates were revised downward to 2.1% from 2.4% by the Commerce Department. The Dollar Index took a weekly hit of 1%, even though it remains up by over 1% for the month, as investors speculate on a pause in U.S. interest rate hikes.

Currency Outlook

In the FX markets, the EUR/USD rose by 0.4% to 1.0923 following indications of persistent inflation in key Eurozone economies, enhancing the prospects of a European Central Bank rate adjustment. Concurrently, GBP/USD advanced in tandem with the EUR/USD, registering gains at 1.2713.

Data for Europe-wide inflation is expected later today, coinciding with U.S. releases on personal consumption and core PCE, the Fed’s preferred inflation metric.

Asia-Pacific and Commodities

In the Asia-Pacific corridor, both the NZD/USD and AUD/USD saw declines, dragged down by looming uncertainties in China’s economic landscape. The Japanese Yen weakened by 2.6% against the dollar this month, with the USD/JPY last quoted at 146.07, amidst persisting expectations of low Japanese interest rates.

In the commodities sector, West Texas Intermediate (WTI) oil prices soared to their highest levels in over two weeks, supported by a substantial reduction in U.S. crude inventories. Brent futures also ascended, closing at $85.86 per barrel. Market players are keeping tabs on hurricane-induced supply constraints and anticipating an extension of Saudi Arabia’s voluntary output cut.

Gold and Crypto

Gold prices maintained a stable trajectory, although further upside seems hampered by expectations of sustained higher U.S. interest rates. On the crypto front, increased legal scrutiny on SEC actions bolstered Bitcoin and Ethereum prices, with BTC/USD reaching a fortnightly high at $28,300, and ETH/USD trading at $1,701.

Forward Outlook

Investor focus is now zeroing in on a cascade of forthcoming economic data and the Federal Reserve’s next policy meeting, likely to impact currency valuations and broader market dynamics in the short to medium term.

Technical Insight

Financial instruments across various asset classes are likely to remain volatile, hinging on the Federal Reserve’s upcoming policy cues and a raft of economic indicators due this week. Therefore, traders should remain vigilant and consider employing diversified strategies to mitigate risks.

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