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Big Banks Report While the USD Gains Ground

Miguel A. Rodriguez
Miguel A. Rodriguez
17 January 2024

The markets are abuzz with news! Read on to discover the performance of two major banks and the impact on their stocks, how the USD and US currency pairs are doing, and the latest developments in the ECB's stance on rate decisions.

Earnings Season Kicked Off with Goldman Sachs and Morgan Stanley

The banking sector remained the focus of earnings season on Tuesday, following Monday's holiday, with Goldman Sachs leading the way.

Goldman's stock went up by more than 1% after the bank announced higher-than-expected revenue for the fourth quarter. This increase was mainly due to successful equity trading, which balanced out weaker performance in its main business.

The other large investment bank that reported fourth quarter earnings yesterday was Morgan Stanley, whose revenue exceeded quarterly expectations thanks to debt trading that fueled a rebound in investment banking, but its profits were affected due to $535 million in extraordinary charges. In this case, the results were interpreted negatively by investors and the share price fell by more than 4%. 

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Morgan Stanley daily chart, January 16, 2024. Source: CAPEX.com WebTrader.         

USD Gets a Healthy Boost Fueled by Interest Rates

In the foreign exchange market, it can be said that the traffic was one-way, as the US dollar gained against the rest of the major currency bloc, driven by a rise in market interest rates. Treasury bond yields grew just over 10 bps across the curve.

The statements of the Governor of the Federal Reserve, Christopher Waller, indirectly influenced this movement. Although he said that the Federal Open Market Committee may decide to reduce interest rates this year, this would only occur if there is no rebound in inflation and emphasized that the Central Bank must be methodical and careful with the pace of easing, giving to understand that rate cuts could be delayed and not begin as soon as the market is currently pricing in.

ECB is Still Holding Back on Imminent Rate Decisions

In Europe, the members of the Governing Council of the European Central Bank join on less optimistic statements about interest rate cuts and reject any imminent decisions.

Still, European bond yields rose to a lesser extent than North American ones as traders continue to bet that the ECB will be forced to lower rates soon given the dire situation of the economy.

The difference between the market interest rates of Europe and the United States increased in favor of the US dollar. This led the EUR/USD pair to lose more than 80 pips in the session and to trade below the technical support zone of 1.0880. 

 

Key Takeaways

  • Earnings season kicked off with big banks reporting like Goldman Sachs and Morgan Stanley.
  • Morgan Stanley beat Q4 estimates, but investors took it negatively resulting in a 4% drop.
  • The ECB is still public on their stance of holding off on rate decision cuts.
  • The US Dollar strengthened, leading the EUR/USD pair down more than 80 pips. 

 

Sources: Bloomberg, Reuters 

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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.