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The dollar climbed to its highest in almost three months against more major currencies on Monday as market participants slashed bets the Federal Reserve would aggressively cut interest rates this year after new economic data further diminished those odds with the Dollar index (USDX) ending the session above the mark of 104.30. This upswing has been attributed to the fortifying ISM Services PMI for January, giving the Dollar Index an advantageous boost via markets giving up on hopes of an interest rate cut in March. Federal Reserve (Fed) Chair Powell maintains cautiousness, emphasizing the need to observe inflation’s sustained drop toward the 2% core target.
CME's FedWatch Tool hints at lesser odds for a rate cut in March, currently standing at 15%. Those odds rise to 50% in May, but the probabilities of a hold are also high.
U.S. main indices started the week with losses amid a jump in Treasury yields after Chairman Jerome Powell shackled hopes of a sooner interest rate cut. Furthermore, buying into Chinese shares was fueled largely by reports that sovereign fund Central Huijin Investment Ltd said it will continue to buy up more exchange-traded funds and support local stock markets with Chinese indexes surging and recovering further from lows hit last week.
Tuesday also marks the midway point of the earnings season. Notable companies including Eli Lilly and Company, Spirit AeroSystems Holdings Inc, Dupont De Nemours Inc, Amgen Inc, Chipotle Mexican Grill Inc, and Ford Motor Company are all set to release their quarterly results.
On the energy front, the two main benchmarks WTI and Brent rose on Monday on concerns that tensions in the Middle East and Russia's ongoing invasion of Ukraine could curb global supplies.
Moreover, market participants will be closely monitoring speeches from Cleveland Fed President Loretta Mester and Boston Fed President Susan Collins are also scheduled to speak.
The EUR/USD started the week with losses ending the session almost 0.50% lower dragging the pair into 12-week lows after EU economic data failed to inspire investor confidence.
The OECD sees pan-European inflation holding above the European Central Bank’s (ECB) 2% until sometime after 2025, hampering money market’s expectations for rate cuts from the ECB, further suppressing upside potential in the Euro (EUR).
On the other hand, market participants slashed bets the Federal Reserve would aggressively cut interest rates this year after new economic data further diminished those odds. U.S. services sector growth picked up in January as new orders increased and employment rebounded.
Gold dropped to more than a one-week low on Monday, weighed down by a higher dollar and bond yields after a solid U.S. jobs report and remarks from Federal Reserve officials dashed expectations of early interest rate cuts.
The blowout job growth and large wage gains dashed prospects of a Fed rate cut next month. Traders also lowered their bets for a cut in borrowing costs at the end of the U.S. central bank's April 30-May 1 meeting.
Market participants focus now shifts to remarks from a host of Fed speakers this week for further clues on the timing of rate cuts.
Oil prices cut losses to settle higher Monday, as fresh supply concerns following wave of retaliatory U.S. strikes against Iranian-backed militias in the Middle East helped offset a rise in the dollar on expectations that the Federal Reserve is likely to keep interest rates higher for longer.
The US launched more retaliatory airstrikes against Iran-backed militias in Iraq, Syria and Yemen over the weekend, in response to the deadly drone strike carried about by Iran-allied militants.
Limiting oil's gains, data on Monday showed U.S. services sector growth picked up in January, dampening hopes of rate cuts even more and pushing the U.S. dollar to its highest in almost three months against other major currencies.
U.S main indices were lower after the close on Monday with the US 30 ending the session 0.89% while US 500 and US Tech 100 fell 0.38% and 0.06% respectively.
Powell told the news program on Sunday that the resilient U.S. economy can give Fed officials more time to take a "prudent" approach to possible benchmark interest rate reductions. The cautious view on rate cuts, pushed Treasury yields higher as bets on rate cuts were reined in.
McDonald’s fell more than 3% reported fourth-quarter comparable sales growth of 3.4%, missing Bloomberg consensus estimates of 4.79%, as the burger chain's international operations were dented by boycotts relating to the violence in the Middle East.
Media firms will also be in focus in the coming days, with results ahead from the industry leaders like Walt Disney, Fox, and Warner Music Group. Chinese e-commerce player Alibaba, ride-sharing firm Uber, and chip designer Arm Holdings are slated to report this week.
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