FOMC Minutes in Focus, while U.S. stocks drop

The US dollar and British pound extended gains in the early session on Wednesday after better-than-expected economic data from the US and UK, as the possibility of further rate hikes by their central banks was raised. US businesses unexpectedly expanded by , in February, close to an eight-month high, according to economic data released on Tuesday, while Britain’s flash PMI rose more than 50 points to 53.0 this month. at a level indicative of economic growth for the first time since July. , The dollar rose against other currencies, while the British pound traded around 1.21015 against the US dollar after a 0.6 percent gain on Tuesday. . The Euro tried to recoup some of Tuesday’s loss and was trading about 0.05% higher against the dollar at 1.0652, after falling 0.36% on Tuesday. “It was kind of a matter of proportionality that while the services sector generally did better, the pound had an extra boost because of that very, very strong performance,” says Rodrigo Catril, head of currencies. Strategist at National Australia Bank. “I think the euro is still in a tough spot because the ECB still has a lot of work to do and that puts pressure on their growth outlook.” , The New Zealand dollar traded about 0.1% higher against the US dollar at 0.62195, after earlier rising near 0.62 8 after a 50 basis point cut by the Bank of New Zealand, as the central bank signaled further interest rate hikes. “Inflation is under upward pressure, so unless the wheels come off the economy soon, another 50bp increase now looks likely,” says Matt Simpson, senior analyst at City Index. “But that time may be dictated by the immediate impact of Cyclone Gabrielle.” , The recovery in US business activity follows a string of recent solid economic data pointing to a tight labor market, persistently high inflation and strong retail sales in the US economy. After these reports, many market participants now see that the Federal Reserve may raise interest rates more than expected to curb inflation. Many economists are focused on the FOMC minutes, which are expected to be released on Wednesday, and which may provide more clues about the Fed’s future moves. “It took more than two weeks, a lot of bullish commentary and strong data for markets to slowly wake up to the fact that a higher final rate is the more likely path for the Fed and we need to forget about cuts this year,” according to Simpson’s of City Index. , In the US stock market, major stock futures traded just above the flat line ahead of the release of the FOMC minutes. The , Dow Jones Industrial Average rose about 1 points, while S&P 500 futures rose about 0.16% and Nasdaq 100 futures gained about 0.23%. Growing concerns that the Federal Reserve may continue its aggressive tightening cycle worried many market participants as major US indexes posted their worst daily performance of the year. In addition, concerns about consumer health were fueled by disappointing earnings reports, including from Home Depot. , The Nasdaq Composite fell 2.5%, while the S&P 500 fell about 2%. The Dow Jones Industrial Average fell 2.06% and is now in the red for the year. “I think there is a repricing in the stock market based on the perception that the Fed will probably need to be higher for longer and because of interest rates,” said Keith Lerner, co-chief investment officer at Truist. earnings season continues, with companies like Nvidia, Etsy and Baidu expected to post quarterly earnings. In the oil market, prices continued to fall on expectations that the Federal Reserve will continue to raise interest rates, adding to concerns that a global economic slowdown could affect energy demand. Higher interest rates typically support the US dollar, making dollar-denominated oil more expensive for buyers of other currencies. , Brent crude futures lost about 23 cents to trade near $82.82 a barrel by 0 20 GMT, after losing 1.2% in Tuesday’s session. West Texas Intermediate (WTI) crude futures were also down 21 cents at $76.15 a barrel. “Growing recession worries are keeping a lid on oil prices, but the market is cautiously optimistic about a recovery in Chinese demand, especially for gasoline and jet fuel,” says Serena Huang, head of APAC analysis at Vortexa.

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