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09/07/2024 - 08:25 UTCThe U.S. dollar showed little change against most major currencies on Monday, with the dollar index (USDX) moving sideways so far this week, trading in a tight range between 104.49 and 104.79 hovering close to one-month lows, as the impact from soft employment and other US economic indicators is still adding pressure on the appeal of the dollar and Treasuries.
The CME FedWatch tool is showing strong signals for a rate cut in September, with a likelihood exceeding 73%. Expectations for a follow-up cut in November remain significant at 51%.
In other news, the yen remained weak against its Asian counterparts on Tuesday, with the USD/JPY pair surpassing the 161 yen level again. This weakness stems from a series of disappointing Japanese economic data releases, which have reinforced expectations that the Bank of Japan has limited room for further interest rate hikes.
Gold fell by more than 1% on Monday, despite recent data pointing to a weaker US economy and concerns over a potential trade war following the EU's new tariffs imposed on China, as gold traders are waiting for more signs to confirm weakness in the US economy and softer inflation numbers.
Wall Street continues to show positive momentum, with the US 500 and the US tech 100 posting new record highs daily, on rising bets that Federal Reserve rate cuts may soon be on the horizon. Analysts from Morgan Stanley, brace investors for a possible pullback, citing upcoming uncertainties in the US election, corporate earnings, and Fed decisions.
A flurry of information is set to impact the interest rate outlook this week. First up is Jerome Powell's testimony, followed by the release of consumer price index data. Throughout the week, speeches by various Fed officials will offer additional perspectives. Later today, the focus could shift to a testimony by treasury secretary Yellen and the NFIB Small Business Index.
The EUR/USD pair traded between gains and losses on Monday after a muddled election outcome in France leaves policy guidance unclear for the Euro bloc.
Federal Reserve (Fed) Chairman Jerome Powell is set to make the first of two appearances this week as the Fed head delivers the semi-annual Monetary Policy Report to the US Senate Banking Committee. This will be followed up by a second appearance on Wednesday to deliver the same report to the US Congressional House Committee on Financial Services.
Later this week, key US inflation data will be released. The US Consumer Price Index (CPI) inflation is due on Thursday, and the Producer Price Index (PPI) wholesale inflation is slated for Friday. Forecasts suggest that both CPI and PPI inflation figures are expected to either remain steady or increase slightly.
Gold prices fell more than 1% on Monday, hurt by a risk-on rally in equities and profit-taking by investors after a sharp rally in the previous session over expectations that the U.S. Federal Reserve could cut interest rates in September.
Data last week pointed to a slackening labour market keeping the U.S. central bank on course to start cutting interest rates soon.
Investors this week will be focussed on Fed Chair Jerome Powell's semi-annual Congressional testimony, comments from a series of Fed officials, and U.S. inflation data due on Thursday. Elsewhere, top consumer China's central bank refrained from gold purchases to its reserves for a second consecutive month in June.
Oil prices closed lower on Monday as traders considered new discussions about a ceasefire in Gaza and the potential impact of tropical storm Beryl on oil production in the Gulf of Mexico.
The hope for an end to the months-long war in Gaza was dampening prices, as talks for a U.S. ceasefire plan are underway and mediated by Qatar and Egypt. If a ceasefire is achieved, the crude market may see a reduction in the risk premium.
On the demand side, expectations for summer travel in the U.S. were high after Independence Day, potentially keeping oil prices afloat.
The major U.S. stock indices experienced gains on Monday, with the US 500 reaching record highs for a fourth consecutive session, despite a cautious atmosphere ahead of Federal Reserve Chair Jerome Powell's testimony to Congress and key inflation data this week.
Powell is scheduled to appear before the Senate and the House on Tuesday and Wednesday, respectively, with a primary focus on monetary policy. Last week, Powell indicated that while the Fed had made progress in addressing inflation, policymakers weren't yet confident enough to start reducing rates. This sentiment was further reinforced by the minutes of the Fed's June meeting.
Alongside rate expectations, attention this week will also be on second-quarter earnings, starting with prominent bank earnings on Friday. The market will closely monitor the strength of corporate earnings amid challenges posed by high interest rates and persistent inflation pressures.
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