26/04/2024 - 08:06 UTCThe U.S. dollar fell on Thursday with the U.S. Dollar index (USDX) ending the session 0.21% lower after data showed unexpected slowing in economic growth and an unwelcome inflation acceleration, potentially tying the Federal Reserve's hands on a pivot to easier interest rates.
The Commerce Department reported that U.S. gross domestic product grew at a 1.6% annualized rate in the January-March period, slower than the 2.4% rate expected by economists polled by Reuters. The report also showed that underlying inflation as measured by the core personal consumption expenditures (PCE) price index rose 3.7% in the first quarter, eclipsing forecasts for a 3.4% rise. The inflation surprise puts an even greater-than-usual focus on the release on Friday of PCE price index data for March.
Wall street's main indexes rose on Thursday with gains heavily biased towards technology stocks following stronger-than-expected earnings from Microsoft and Alphabet. Shares of Alphabet and Microsoft were advancing in extended hours trading after both companies reported quarterly results that beat Wall Street estimates.
Class A shares of Google parent Alphabet Inc rallied about 12% in after-hours trade as the firm clocked stronger-than-expected first-quarter earnings on robust demand for its new AI offerings. Alphabet also declared its first ever dividend, of 20 cents per share. Microsoft Corporation shares rose 4.6% after-hours as strong demand for AI products also helped the firm clock stronger-than-expected first-quarter earnings.
On the energy front, oil prices rose slightly on Thursday and were set for a positive end to the week amid bets on tighter supplies and persistent geopolitical unrest in the Middle East. But gains were limited with traders on edge ahead of key U.S. inflation data due later in the day, which is set to offer more cues on the path of interest rates.
Focus was now squarely on upcoming PCE price index data, due later today. The reading is the Federal Reserve’s preferred inflation gauge, and is widely expected to factor into the central bank’s outlook on rates.
The EUR/USD ended the session with moderate gains on Thursday adding 0.25%.
US Gross Domestic Product (GDP) eased more than expected on Thursday, with annualized Q1 growth slowing to 1.6% compared to the previous 3.4%, and well below the forecast 2.5%. Hopes for rate cuts were further eroded after US Personal Consumption Expenditure (PCE) inflation accelerated again in the first quarter, with Q1 PCE rising 3.4% compared to the previous quarter’s 1.7%. Still-high inflation is reducing market hopes for rate cuts, sending risk appetite into a tailspin during the US trading session before markets staged a determined but limited recovery.
Friday brings mostly low-tier European data, and markets will be turning to face US PCE Price Index figures for March as investors look for a more fine-tuned look at the US’ inflation outlook.
Gold prices rose on Thursday as signs of a cooling U.S. economy fed some demand for the yellow metal, although gains were limited in anticipation of more rates cut cues from key inflation data.
The yellow metal was also set for steep weekly losses after tumbling from near record highs over the past five sessions, as traders largely priced out expectations for early U.S. interest rate cuts.
Bullion prices saw some relief after the dollar fell tracking softer-than-expected gross domestic product data. But this relief was limited as a stronger GDP price index saw traders further price out expectations of interest rate cuts by the Federal Reserve.
Oil prices rose on Thursday and were set for a positive end to the week amid bets on tighter supplies and persistent geopolitical unrest in the Middle East. A drop in the dollar, following weak U.S. economic growth data, offered some relief to oil prices.
Concerns over disruptions to Middle East supplies also remained in play as Israel stepped up its strikes against Gaza. While a war with Iran did not materialize, the Israel-Hamas conflict showed few signs of stopping.
U.S. stock index futures rose on Thursday, with gains heavily biased towards technology stocks following stronger-than-expected earnings from Microsoft and Alphabet.
While caution over U.S. inflation and interest rates remained in play, the positive earnings ramped up hopes that demand for artificial intelligence will keep supporting tech earnings in the coming quarter.
Data on Thursday showed that the U.S. economy grew at its slowest pace in nearly two years in the first quarter while inflation accelerated, dampening hopes that the Federal Reserve would begin cutting interest rates this year.
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