Dow Jones Extends Winning Streak Amid Optimism Over Potential Rate Cuts | Daily Market Analysis

Key events:

• UK - GDP (QoQ) (Q1)
• UK - BoE MPC Member Pill Speaks
• USA - FOMC Member Bowman Speaks
• USA - Michigan Consumer Sentiment

Thursday marked another positive day for the Dow Jones Industrial Average, extending its winning streak to seven consecutive sessions. Investor optimism surged across all three major US indices, buoyed by encouraging weekly jobless claims data that fueled speculation of potential interest-rate cuts.

The S&P 500 saw an increase of 26.41 points, or 0.51%, reaching 5,214.08 points, while the Nasdaq Composite climbed by 43.51 points, or 0.27%, reaching 16,346.27. Similarly, the Dow Jones Industrial Average surged by 331.37 points, or 0.85%, reaching 39,387.76.

Investor optimism regarding potential interest-rate cuts received a boost from various data points, with next week's producer and consumer prices readings looming as crucial indicators.

Recent figures revealed that the number of Americans filing new claims for unemployment benefits exceeded expectations, reaching a seasonally adjusted 231,000 last week, surpassing economists' forecasts of 215,000 claims.

The preceding week's data, which indicated a slowdown in job growth for April and a decline in job openings to a three-year low in March, led investors to factor in the likelihood of one or two rate cuts by the Federal Reserve this year. This contrasts with previous expectations, where traders were anticipating just one rate cut.

Friday sees the Australian Dollar stepping back from its recent uptrend after a surge on Thursday, triggered by a drop in the US Dollar amid disappointing US Initial Jobless Claims, suggesting a potentially more dovish approach from the Federal Reserve. This served to counterbalance the downward influence on the Aussie Dollar stemming from the Reserve Bank of Australia's less aggressive stance, notably in response to inflation figures surpassing expectations.

In Australia, the inflation rate dipped to 3.6% in the first quarter from 4.1% in the previous quarter, marking the fifth consecutive quarter of moderation. However, it outpaced expectations of 3.4%. Additionally, the Monthly Consumer Price Index (YoY) for March jumped to 3.5%, exceeding the anticipated reading of 3.4%. Despite acknowledging the recent slowdown in inflation control progress, the Reserve Bank of Australia maintained a stance of flexibility.

Meanwhile, the NZD/USD pair halted its ascent for two consecutive days, steadying around 0.6020 during the Asian session on Friday. The New Zealand Dollar encountered pressure following the release of the Business NZ Performance of Manufacturing Index (PMI), which gauges business activity in New Zealand's manufacturing sector.

Apart from that, the USD/JPY pair traded stronger around 155.50 on Friday during early Asian trading hours, driven by renewed demand for the US Dollar. Nevertheless, verbal intervention and hawkish remarks from the Bank of Japan’s Governor Kazuo Ueda might limit the downside of the Japanese Yen in the short term.

On Thursday, BOJ Governor Kazuo Ueda emphasized the central bank's vigilance over the recent weakness of the JPY in guiding monetary policy. These hawkish remarks have heightened expectations of a potential uptick in short-term borrowing costs in the forthcoming months, lending support to the JPY and exerting downward pressure on the USD/JPY pair. Moreover, verbal intervention from Japanese authorities is anticipated to cap the pair's upward movement in the short run. Early on Friday during the Asian session, Japanese Finance Minister Shunichi Suzuki reiterated his preparedness to implement necessary measures concerning foreign exchange if deemed appropriate. Meanwhile, the GBP/USD pair is exhibiting modest gains near 1.2525 during the early Asian session on Friday, rebounding from the lows of 1.2445 subsequent to the Bank of England's dovish stance. The focus on Friday will be on the initial reading of the UK GDP for Q1 and the US Michigan Consumer Sentiment report.

The BoE made the decision to maintain its borrowing costs at 5.25% for the sixth consecutive meeting on Thursday, hinting at the possibility of interest rate cuts as soon as next month, citing positive movements in inflation. BoE Governor Andrew Bailey, speaking at the press conference, acknowledged the potential for a rate cut in the upcoming month but stressed the importance of evaluating inflation, economic activity, and the labor market before finalizing any decision. The dovish stance from the UK central bank, suggesting potential future reductions in interest rates, exerted downward pressure on the Pound Sterling following the monetary policy meeting. Furthermore, BoE Chief Economist Huw Pill expressed heightened confidence in considering rate cuts over the next few meetings, though additional evidence is needed. Investors have been factoring in the likelihood of two rate cuts this year, with the first expected in August. In the United States, the preliminary Michigan Consumer Sentiment Index for May is set to be unveiled on Friday, with forecasts indicating a slight decline. This index measures sentiment among US consumers, covering three main areas: personal finances, business conditions, and buying conditions.