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30/07/2024 - 05:56 UTCThe dollar rose against most major currencies on Monday, with the dollar index (USDX) breaking above the tight trading range seen in the past week, as investors brace for key economic reports up ahead, including a key Federal Reserve decision that could set the tone for coming weeks.
Market expectations for a Federal Reserve interest rate reduction in September rose from 87.7% seen earlier this week to 89.6% according to CME FedWatch. Expectations for a subsequent rate cut in November fell from 63% to 57.3%.
The yen paused its recent surge as the BOJ's two-day meeting began on Tuesday. The currency had rallied over 2% against the dollar last week, recovering from a 38-year low amid global market turmoil and growing expectations of a BOJ rate hike.
In the crypto space Bitcoin temporarily surpassed the $70K psychological level on Monday, only to slide later in the session and trade close to the $67K mark. Bitcoin's decline was intensified by news of the U.S. government offloading $2 billion in seized Bitcoin, reigniting fears of increased selling pressure. The overall market capitalization stands at $2.51 trillion as at 07:25 AM GMT.
Negative sentiment returns to Wall Street as all three primary U.S. stock market indices posted minor losses on Monday, despite growing optimism that the central bank would initiate interest rate cuts in September. Focus now turns to an upcoming Federal Reserve meeting for more cues on interest rate cuts and key quarterly earnings from Wall Street’s biggest companies, such as Apple Inc and Microsoft Corporation, which are due in the coming days.
On Tuesday, the spotlight will be on the JOLTS Job Openings data, a Consumer Confidence survey by the Conference Board, and the Standard & Poor's/Case-Shiller house price index.
The euro declined against the dollar on Monday, with the EUR/USD losing 0.3% of its value as investors prepare for a flurry of market events, including crucial policy decisions from the Federal Reserve, Bank of Japan, and Bank of England midweek.
Additionally, the closely watched U.S. employment report on Friday could significantly influence the Fed's path. Indications of easing inflation might fuel expectations of multiple rate cuts by the Fed this year, beginning in September, thus adding further pressure on the dollar.
Aside from US employment and consumer confidence data due later today, some price action could also be observed upon the release of Italian and German GDP figures earlier in the day.
Gold prices retreated on Monday as investors shifted their focus to the upcoming Federal Reserve meeting and its potential implications for interest rates. A stronger dollar, buoyed by speculation about a hawkish Fed stance, weighed on the precious metal.
Gold had touched record highs earlier this month, amid safe haven buying against uncertainty surrounding the US presidential election race. In addition, investors grow increasingly cautious regarding lower rates, adding further pressure on the yellow metal.
Market focus will most likely turn towards the upcoming 2-day Fed meeting on monetary policy and key employment numbers due to be released on Friday.
Oil prices plunged to a two-month low in early Asian trading on Tuesday. The absence of an immediate escalation in the Israel-Hezbollah conflict led traders to remove a geopolitical risk premium from prices.
Market sentiment was also dampened by caution ahead of the OPEC meeting. Given the recent decline in crude, the cartel is expected to downplay any potential production cutbacks.
OPEC is set to convene on August 1st and while expectations for the meeting are low-key, with little anticipated change to production levels, recent oil price weakness could influence key players to take significant steps. Russia and Saudi Arabia, who had previously signaled potential production increases later in the year, might now be inclined to temper those plans.
The US 500 index that tracks the performance of the S&P 500 future, closed moderately lower on Monday, ahead of key earnings reports from tech megacap companies and the Federal Reserve meeting due on Wednesday.
The FOMC is anticipated to maintain interest rates at 5.375% but signal a potential rate reduction in September. According to Morgan Stanley, the Fed is expected to indicate a lower target rate but will likely refrain from specifying a cutting timeline. This shift in stance is primarily driven by encouraging inflation data from May and June. Following a period of elevated inflation in the first quarter, largely attributed to seasonal fluctuations, the second quarter has witnessed a substantial decline in inflationary pressures.
The focus now turns to major earnings releases up ahead this week from Microsoft and Apple. Other tech majors reporting earnings this week, include Meta Platforms Inc, Advanced Micro Devices Inc and Amazon.com.
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