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29/07/2024 - 09:20 UTCThe dollar showed little change against most major currencies on Friday, with the dollar index (USDX) remaining within a tight range between levels 103.85 and 104.31 since the beginning of the week as investors stay on the sidelines waiting for key economic reports due this week that could shed some light on the Fed’s path ahead. The release of inflation figures on Friday largely matched market forecasts, bolstering expectations for a Federal Reserve interest rate reduction in September. A subsequent drop in Treasury yields also contributed to recent weakness seen in the dollar.
Market expectations for a Federal Reserve interest rate reduction in September fell from 87.7% seen earlier this week to 87.7% according to CME FedWatch. Expectations for a subsequent rate cut in November rose from 58.4% to 63%.
In other news, the top two cryptocurrencies by market cap, Bitcoin and Ethereum have recovered from monthly lows seen on Thursday, with Bitcoin hovering right below its all-time highs. The move was partly supported by Republican presidential nominee Donald Trump who spoke on Saturday at the Bitcoin conference and raised the prospect of friendlier regulation and larger adoption of cryptos in the US. Gains continue early on Monday with the overall market capitalization hitting $2.59 trillion as at 06:50 AM GMT according to Coingecko.
The three primary U.S. stock market indices return to gains on Friday, after the release of the PCE price index for June, the Fed's favored inflation measure, which aligned closely with market forecasts, 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.
In the week ahead, the spotlight will be on Core CPI numbers from the EU, U.S. pending home sales, Canada’s GDP, interest rate decisions from the Fed and the BOE, unemployment claims and non-farm payrolls data from the U.S.
The euro posted a mild recovery against the dollar on Friday, for a second consecutive session, with the EUR/USD pair trading between levels 1.0828 and 1.0871 in the past week. Weakness in the dollar was mainly attributed to US inflation numbers released largely in line with expectations keeping bets high that a rate cut in September is imminent
The Commerce Department's June personal consumption expenditures (PCE) price index was up 0.1%, as expected, after being unchanged in May, underscoring an improving inflation environment. Year over year, the PCE price index climbed 2.5% after rising 2.6% in May, also in line with forecasts.
Indications of easing inflation might fuel expectations of multiple rate cuts by the Fed this year, beginning in September, thus adding pressure on the dollar.
Gold prices recovered sharply on Friday, with the yellow metal up by 0.95% at the end of the session, supported by subsiding inflation pressures that could help officials who are meeting next week gain confidence that inflation is moving toward the U.S. central bank's 2% target.
The yellow metal may also see some safe haven demand deriving from uncertainty over the U.S. presidential race, as recent polls indicate a close race between Donald Trump and Kamala Harris.
Investors focus will most likely turn to the FOMC statement where no change is expected in monetary policy for the time being. Some price action also expected upon the release of Friday’s US employment data.
Oil prices fell sharply on Friday, with the two main benchmarks WTI and Brent down by 1.93% and 1.95%. According to reports, the move stemmed from growing fears of a Chinese economic slowdown, which could curb global oil consumption.
Data released last week revealed an 11% decline in China's total fuel oil imports during the first half of 2024 which has ignited concerns about broader Chinese demand.
Meanwhile, demand could receive additional pressures from U.S. refiners, as they prepare to curtail production in the lead-up to the end of the summer driving season in early September.
The US 500 and US Tech 100 recovered from multi week lows on Friday, gaining by 0.85% and 0.78% respectively, as soft inflation numbers boosted bets for more than one interest rate cuts this year.
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.
Aside from key earnings data due later this week, markets will also look forward to the upcoming Fed meeting on monetary policy and to employment numbers due to be released on Friday.
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