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27/08/2024 - 07:16 UTCThe US Dollar, as measured by the US Dollar Index (USDX), showed signs of recovery on Monday as it ended the session 0.22% higher.
This comes after a sharp decline last week, which was largely attributed to Federal Reserve Chair Jerome Powell's dovish comments at the Jackson Hole Symposium. Powell’s remarks suggested a potential shift towards a more accommodative monetary policy, which led to the 10-year US Treasury yield dropping below 3.8%, exerting downward pressure on the USD.
Despite the US economy showing stronger-than-expected growth, the market's anticipation of aggressive monetary easing may be premature. There appears to be a disconnect between the robust economic data and market expectations, which signals caution.
The market currently anticipates a total of 100 basis points of easing by the end of this year, and 200 basis points over the next 12 months. The probability of a 50 basis point rate cut in September stands at 30-35%, dependent on upcoming economic data.
U.S. main indexes posted a mixed picture on Monday with US 30 ending the session slightly higher while US 500 and US Tech 100 lost ground.
On the energy front, Oil prices jumped 3% on Monday, driven by fresh supply concerns after Libya's eastern-based government announced the closure of all oil fields, effectively halting production and exports. This move added to the existing fears of supply disruptions due to the escalating conflict in the Middle East, further tightening the global oil market.
Market participants will be closely watching the August Non-Farm Payroll (NFP) report for further insights into the Fed’s next steps. Additionally, this Friday's release of the July Personal Consumption Expenditures (PCE) data will be crucial in shaping expectations for the Federal Reserve's policy path.
The EUR/USD pair pared back recent gains on Monday as traders eased off broad-market Dollar-negative flows that had pushed the euro to its highest levels in 13 months last week.
This week’s economic calendar is expected to be relatively quiet, but a few key releases could still impact market sentiment. On Thursday, the Q2 US Gross Domestic Product (GDP) figures are expected, with forecasts pointing to steady growth at an annualized rate of 2.8%.
The market is now closely watching economic data for clues on future rate cuts, with preliminary EU Harmonized Index of Consumer Prices (HICP) inflation data scheduled for release on Friday. However, Friday's release of the US core Personal Consumption Expenditure (PCE) Price Index for July is seen as a potential market mover.
Gold prices firmed on Monday, nearing recent record highs, as investors placed solid bets on a September interest rate cut following dovish signals from Federal Reserve Chair Jerome Powell. The appeal of gold as a safe haven also rose due to escalating geopolitical risks in the Middle East.
The market's current bid for gold is being driven by dovish signals from Powell's speech on Friday, along with safe-haven interest due to geopolitical risks.
Oil prices jumped 3% on Monday as supply concerns intensified following production cuts in Libya and escalating conflict in the Middle East. On Monday, Libya’s eastern-based government announced the closure of all oil fields, halting production and exports.
According to the Organization of the Petroleum Exporting Countries (OPEC), Libya's oil production was around 1.18 million barrels per day in July.
Tensions remain high in the Middle East, with reports of missile attacks by the Iranian-backed Hezbollah being largely thwarted by Israeli strikes in southern Lebanon.
The US 30 rose on Monday as investors shifted towards cyclical stocks like financials, anticipating a Federal Reserve interest rate cut next month. In contrast, the US Tech 100 and US 500 retreated as tech stocks stumbled.
On the earnings front, Nvidia's stock fell 2.20% ahead of its Wednesday earnings report, which is expected to be one of the most closely watched events in the U.S. stock market this week. Additionally, earnings results from companies like Dell, Salesforce, Dollar General, and Gap are also scheduled for this week.
The Federal Reserve's upcoming rate decision in September is now the focus of market attention, with key economic data set to be released this week, including revised second-quarter GDP figures and the Personal Consumption Expenditures (PCE) report, which contains the Fed's preferred inflation measure.
The materials contained on this document should not in any way be construed, either explicitly or implicitly, directly or indirectly, as investment advice, recommendation or suggestion of an investment strategy with respect to a financial instrument, in any manner whatsoever. Any indication of past performance or simulated past performance included in this document is not a reliable indicator of future results. For the full disclaimer click here.
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