Today is Good Friday and stock exchanges in many parts of the world are closed. Volatility in the currency market should decrease hour by hour. Today is the last day of the month and the end of the first quarter for financial markets. Despite this, today the markets will find out how the report on American spending in March progressed. We will only know the full reaction to this publication after Easter.
Volatility on Wall Street in Thursday’s session was modest. The SP500 and Dow Jones gained about 0.12%, while the Nasdaq Composite lost the same amount. The German Dax moved up by a cosmetic 0.08%. Gold set a new record around $ 2235 per troy ounce. The rate of the main currency pair fell after data on retail sales from Germany to 1,0775. In the second part of the day, as a result of data from the United States, there was a reaction upwards, which resulted in a temporary increase in rates above 1.08. This morning, the currency pair has set a new local bottom below 1.0770. The price of cocoa ($9700 per tonne) fell slightly but is still around historical records. The commodity has had an impressive rally. Since the beginning of the year, it has gained more than 130% and since March 2023, over 235%.
Data published on the U.S. GDP in the fourth quarter of 2023 turned out to be higher than expected. The annualized result indicated that the U.S. economy grew at a rate of 3.4%, the forecast pointed to 3.2%. Private consumption (3.3%) also turned out to be better. The GDP deflator, showing how much of the GDP change in a given year resulted from changes in price levels, was at 1.7%. The PCE deflator, showing the average change in prices of domestic consumer goods (excluding energy and food prices), remained at 2% (a rise to 2.1% was expected). Weekly data from the labor market did not bring any breakthrough and the number of benefit applications was 210,000, slightly less than the market consensus.
The American consumer is still in a good mood. This is apparent from the University of Michigan report. The main index rose to 79.4 points from 76.9 points previously. Short-term (2.9%) and long-term (2.8%) inflation expectations fell. The dollar began to gain after 15:00, which resulted in EUR/USD falling below 1.08 again.
Retail sales from Germany were disappointingly negative. This is the 24th consecutive month of negative growth. The -2,7% result was significantly worse than forecasts (-0.9%) and previous figures (-1.4%). Monthly momentum also performed negatively at -1.9%. Here, forecasts indicated growth of 0.4%. The Euro weakened on publication, contributing to the fall of the euro-dollar rate to around 1,0775.
Today, despite the holiday mood and closed stock exchanges, we will receive an important report on American spending, which includes information on the inflation measure preferred by the Fed. Higher readings of the PCE and PCE core deflators will strengthen the dollar and perhaps the “departure” of the main currency pair below 1.08 will prove to be sustainable for some time. June is currently likely to be the date of the first cut by the Fed, but higher inflation readings will cause the market to reduce its valuation chances for such a scenario to occur.
Łukasz Zembik Oanda TMS Brokers
