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Key PCE Data is Released While Stocks and the USD Surge

Miguel A. Rodriguez
Miguel A. Rodriguez
26 January 2024

Stay in the loop with the latest market news where the stock market's bull-run isn't slowing down, the ECB's meeting, and fresh GDP data gives the USD a boost. Plus, traders anticipate today's PCE data drop. Dive into the update and learn what's shaping the markets right now.

ECB is Adamant in Rate Decisions

The most important event yesterday was the meeting of the Governing Council of the European Central Bank. As the market expected, the ECB left interest rates unchanged.

Both in the report issued after the meeting and in President Lagarde's comments during the press conference, there was no substantial change in what was known until now. Essentially, the ECB sees an acceptable pace in the fall in inflation but still needs more data to be able to ensure that it reaches and remains at the target level of 2%. Therefore, they recognize they are dependent on the data published in the coming weeks and months.

Still, Ms. Lagarde stated that she stands by comments made days earlier about possible rate cuts in the summer. In reality, there was no additional information regarding what was already known, but the market interpreted it as something more "dovish" and German bond yields fell between 5 and 8 bps. The futures market currently expects about 140 basis points in rate cuts this year, a bold prediction given the ECB Governing Council's more cautious members' hesitation to lower rates. This prediction would only make sense if the European economy fails to improve or if it stays weak or gets worse.

ECB Meeting Nudged the Euro Down and Pushed the USD Up

As a result of all of the above, the Euro weakened and EUR/USD fell to the 1.0840 area, after having traded above 1.09 just one day before.

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EUR/USD 5-minute chart, January 25, 2024. Source: CAPEX.com WebTrader.        

The slight strengthening of the US Dollar also contributed to this movement after the publication of the GDP figure for the 4th quarter, which showed solid growth of 3.3%, well above the expected 2%. The North American economy surprisingly resisted the Fed's challenge, which carried out a drastic tightening of monetary policy.

The price component of the GDP figure, the GDP Price Index, fell in the last quarter of the year to 1.5% from 3.3% in the previous figure and below expectations. This is still good news and could anticipate better inflation data.

Stock Market’s Bull-Run Continues Boosting Indices Along with It

The stock market reacted positively, and the North American stock indices opened the day recovering the falls of the previous day, mostly caused by the poor results of Tesla.

Today the inflation data preferred by the Federal Reserve is published, the one that guides its monetary policy decisions, Personal Consumption Expenditure (PCE). A highly relevant figure that can set the course of the market in the coming weeks.

Key Takeaways

  • The ECB left interest rates unchanged.
  • The Euro weakened following the news. The EUR/USD dipped around 1.0840.
  • The USD strengthened after Q4 GDP data was released showing healthy economic growth.
  • The stock market recovered after Tesla’s poor earnings release the day before.
  • Traders are eager for upcoming Personal Consumption Expenditure (PCE) data.

 

Sources: Bloomberg, Reuter 

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Miguel A. Rodriguez
Miguel A. Rodriguez
financial_writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.