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12/09/2023 - 07:27 UTCThe U.S. dollar posted a moderate decline on Monday, with the dollar index (USDX) ending the session 0.30% lower, at 104.53. Despite the mild weakness displayed, the dollar still remains near its highest levels in six months, supported by solid economic reports that lift expectations for further rate hikes by the Fed in the near future. According to CME’s Fedwatch tool the majority of investors anticipate that the Fed will keep rates steady when it meets later this month, but it is still unclear what the Fed might do later this year.
Reports from the U.K. early on Tuesday showed an increase in July’s unemployment rate and a rise in August claimant count. However, despite signs of weakness in the labor market, average earnings still rose, suggesting that the BOE still has to deal with wage-based inflationary pressures when it meets next week.
Energy prices showed little change on Monday, with WTI up by 0.37% while Brent gained by 0.33% for the day. Prices seem to have stabilized right below 10-month highs maintaining the positive tone generated by Saudi Arabia and Russia extending their voluntary supply cuts to the end of the year. Monthly reports by the International Energy Agency and the Organization of the Petroleum Exporting Countries will be closely watched this week.
Another moderate rise was seen in the main US stock indices on Monday, with the US 500 up by 0.45%, the US tech 100 rising by 0.90%, and the US 30 posting a mild 0.15% recovery. Investors now looking ahead to upcoming inflation data later this week, with core CPI expected to fall to 4.3% growth on an annual basis. Other reports due include U.S. retail sales, business and retail inventories, import and export price indexes, the NY Empire State manufacturing index, industrial production, and preliminary Michigan consumer expectations and sentiment.
On the eurozone front, the ECB meets on Thursday to announce its monetary policy statement, and investors are very uncertain of the outcome as price pressures remain elevated while data shows economic activity is now slowing sharply.
For Tuesday, investor focus turns to Germany’s ZEW economic sentiment index while later on the U.S. will publish the NFIB Small Business Index and 10-year bond auction results.
The EUR/USD pair posted moderate gains of 0.29% on Monday driven by a weakening US Dollar across the board.
On Thursday, the European Central Bank (ECB) will have its monetary policy meeting. The odds favor a modest interest rate hike, but a pause would not be a dramatic surprise. Uncertainty about the ECB's next steps weighed on the Euro last week. On Tuesday, the German ZEW Survey is due.
On the other hand, the stronger position of the US economy seems to be supporting the greenback. The next important report will be on Wednesday when the Consumer Price Index (CPI) is published ahead of next week's FOMC meeting.
Gold edged up on Monday on a retreat in the dollar, with focus still squarely on U.S. inflation readings and their likely influence on the Federal Reserve’s interest rate trajectory. Gold prices rose 0.14% on Monday ending the session just above $1921.00 per ounce.
Market Participants were mostly positioning for the U.S. consumer price data (CPI) on Wednesday, given its potential influence on whether the Fed may put rates on hold.
Oil prices settled almost unchanged on Monday at the high levels reached last week following fresh Saudi and Russian output Cuts.
The supply cuts overshadowed continuing concern over Chinese economic activity. On Monday U.S. Deputy Treasury Secretary Wally Adeyemo said that China's economic problems were more likely to have a local impact than affects the United States.
Investors focus now shifts to monthly reports from the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) due later this week.
U.S. stocks were higher after the close on Monday, as gains in the Consumer Goods, Telecoms and Consumer Services sectors led shares higher. U.S main indexes rose on Monday, led by a rally in Tesla and big tech bullish bets on stocks emerged a day ahead of Apple\s eagerly anticipated iPhone 15 launch. The US 500 and US 30 rose 0.45% and 0.15% respectively, while US Tech 100 posted gains of 0.90%.
Market Participants are looking to August consumer price index data due on Wednesday for clues about how close the Federal Reserve may be to ending its campaign of interest rate hikes. That will be followed by producer price data on Thursday.
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