The 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.