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23/07/2024 - 08:17 UTCThe dollar held up strongly against most major currencies on Monday, with the dollar index (USDX) trading in a tight range between levels 103.9 and 104.16 for the past two sessions. Recovery in the dollar is receiving pressures from an anticipated interest rate cut as well as uncertainty over the 2024 presidential elections.
Market expectations for a Federal Reserve interest rate reduction in September stand at 91.7%, according to CME FedWatch. However, bets on a subsequent rate cut in November have decreased, declining from 59.2% seen last week to 51%.
In Asia, China surprised markets on Monday by cutting interest rates for the first time since last August, signalling intent to boost growth in the world's second-largest economy. In Japan, the yen has found some support from Tokyo's repeated attempts to bolster the yen through market intervention, coupled with investor focus on the upcoming BOJ policy meeting, where a multi-year bond tapering strategy is expected.
Wall street returns to gains on Monday, with the US 500 receiving a boost from Nvidia gains which extended to the whole technology sector. The US 500 gained by 0.6%, marking its biggest one-day increase since Jun.5, while the US tech 100 climbed 0.69%, and the US 30 was almost unchanged, up by a mere 0.05%.
NVIDIA's stock surged nearly 5% after Reuters reported the company is developing a Blackwell GPU variant, the B20, tailored for the Chinese market and adhering to U.S. export restrictions. The news buoyed the broader tech sector, encouraging dip buying after recent volatility. Investors now focus on Tuesday's earnings reports from tech giants Alphabet and Tesla.
In the spotlight for this week is Friday’s PCE consumer price index where a cooler-than-expected report could cement the market's conviction that the Fed will lower interest rates in September.
The EUR/USD remained steady below 1.0900 on Monday as the new trading week began with relatively low activity. Limited significant data is expected during the first half of the week, resulting in traders largely holding their positions as they anticipate the release of key Purchasing Managers Index (PMI) figures for both the EU and the US on Wednesday.
Tuesday will see the release of mid-tier US Existing Home Sales Change for June, while Wednesday is anticipated to feature the release of important Purchasing Managers Index (PMI) data prints, which will be closely monitored by EUR/USD traders. Thursday will continue to be significant with high-impact US data, including the annualized Gross Domestic Product (GDP) for the second quarter of 2024. The trading week will wrap up with the release of US Personal Consumption Expenditure - Price Index (PCE) inflation on Friday, providing crucial US inflation data.
Gold prices experienced a decline to their lowest point in over a week on Monday, attributed to a strengthening dollar. Traders are eagerly anticipating upcoming U.S. economic data releases and insights from Federal Reserve officials during the course of this week to gain clarity on the potential timing of interest rate adjustments.
The market's focus is now directed towards the release of U.S. gross domestic product data for the second quarter on Thursday, as well as the personal consumption expenditure (PCE) data scheduled for Friday.
According to CME's FedWatch data, money markets have completely factored in a 25-basis-point Fed rate cut by September. Lower interest rates serve to reduce the opportunity cost associated with holding non-yielding bullion.
Oil prices experienced a second consecutive decline on Monday, reaching their lowest point in over a month. This downward trend was attributed to the increasing stockpiles and indications of weakening demand, as investors seemed to overlook U.S. President Joe Biden's decision to end his reelection bid.
In the Middle East, Israeli fighter jets carried out strikes on Houthi military targets near Yemen's Hodeidah port, resulting in the loss of at least six lives.
Additionally, China, a major oil importer, surprised the markets when it decreased a key short-term policy interest rate and benchmark lending rates to stimulate its economy. However, this move did not provide the expected support for oil prices.
On Monday, Wall Street's key benchmarks closed higher, with investors shifting their focus back to megacap growth stocks. This move helped the US 500 and The US Tech 100 bounce back from their worst weekly performance since April. Similarly, the US 30 returned to positive territory, ending a two-session skid following its all-time closing high last Wednesday.
The exit of Biden from the political scene could lead investors to unwind trades that were based on expectations of increased U.S. fiscal and inflationary pressures under a Republican Trump victory.
In other news, In response to a Reuters report indicating that Nvidia, the artificial intelligence chip leader, was developing a version of its new flagship AI chips for the China market compliant with current U.S. export controls, Nvidia's stock rose by more than 4.5%.
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