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22/10/2024 - 07:33 UTCThe U.S. dollar gained against most of its major peers on Monday, with the dollar index (USDX) up by 0.5% and hitting levels last seen in early August. Safe-haven demand lifted the greenback as the 2024 presidential election approaches, with geopolitical uncertainties fuelling a risk-averse mood for investors. In addition, further support in the dollar came from lower expectations for significant rate cuts by the Federal Reserve. Investors will closely monitor what is expected to be a tight race between the two presidential candidates and its potential influence on the Federal Reserve's monetary policy decisions.
According to CME Fedwatch tool current market expectations indicate there is a strong likelihood of a 25-basis-point interest rate reduction, with an 88.5% probability, while the odds of rates remaining unchanged are at 11.5%.
Most Asian currencies remained relatively unchanged or declined slightly on Monday. The yen reached its weakest level since late-July, driven by concerns about U.S. interest rates and the Bank of Japan's ability to raise rates further. The yen's weakness was exacerbated by doubts about the BOJ's ability to hike rates further, especially after the change in Japan's leadership and the new Prime Minister's opposition to more rate hikes. In China, stimulus measures had limited impact on market sentiment with the yuan depreciating after the People's Bank of China unexpectedly cut benchmark rates more than expected.
U.S. stock market benchmarks pulled back slightly after a streak of daily gains. Investors were wary of risk, higher Treasury yields, and the upcoming release of third-quarter earnings reports. However, NVIDIA Corporation's 4% rise taking it to record levels helped limit losses in the US tech 100. Several major Wall Street companies, including Texas Instruments Incorporated, Verizon, Lockheed Martin and automobile maker General Motors Company are scheduled to report their earnings on Tuesday.
Some key events later today include the U.S Richmond Manufacturing Index and key speeches from FOMC’s Harker, BOE Governor Bailey and ECB President Lagarde.
The EUR/USD pair stumbled at the start of the week, slipping towards 12-week lows just above the 1.0800 mark.
Investor sentiment remains cautious, with uncertainty surrounding the Federal Reserve's outlook on future rate cuts. Attention now turns to key economic data, particularly the Purchasing Managers Index (PMI) reports, due later in the week, which will offer insight into the global economy's trajectory.
European Central Bank (ECB) President Christine Lagarde is also set for several public appearances, with a notable speech on Wednesday at the Atlantic Council in Washington DC, where she will address Europe’s current financial challenges. Meanwhile, global PMI figures will be released on a rolling basis starting Thursday.
Gold prices surged to another record high on Monday but later retreated amid rising US Treasury bond yields and a strengthening US Dollar.
Increased tensions in the Middle East and uncertainty surrounding the US presidential election have driven flows toward safe-haven assets over the past week.
On the monetary policy front, Federal Reserve (Fed) officials provided further guidance. Dallas Fed President Lorie Logan emphasized the need for flexibility in monetary policy, suggesting a gradual approach to lowering borrowing costs. Minneapolis Fed President Neel Kashkari echoed these sentiments, signaling modest rate cuts in the coming quarters.
Oil prices climbed nearly 2% on Monday, recovering some of last week's steep losses of more than 7%, as escalating conflict in the Middle East and concerns over potential Israeli retaliation against Iran raised fears about supply disruptions in the region.
U.S. Secretary of State Antony Blinken is set to visit the Middle East to push for a ceasefire and facilitate negotiations to end the Gaza conflict, while U.S. envoy Amos Hochstein is holding talks with Lebanese officials to address the growing tensions with Hezbollah.
In China, the central bank cut benchmark lending rates on Monday as part of broader stimulus efforts to revive the economy. Meanwhile, Minneapolis Federal Reserve Bank President Neel Kashkari reiterated on Monday that he expects "modest" interest rate cuts in the coming quarters.
The US 30 and US 500 ended lower on Monday, pulling back from Friday’s record highs after six consecutive weeks of gains. Rising Treasury yields and concerns over elevated valuations had investors on edge as they awaited key earnings reports from major companies.
After a mostly upbeat start to the earnings season, attention now shifts to the companies set to report this week, including Tesla, Coca-Cola, and Texas Instrument.
Investors are also keeping an eye on the U.S. presidential election, as polls show improving odds for former President Donald Trump.
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