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12/08/2024 - 07:54 UTCThe dollar posted a moderate decline against most major currencies on Friday, with a mild drop of 0.06% seen in the dollar index (USDX) which has been hovering around the 103.0 mark for the past few sessions. Dollar traders could remain on the sidelines in upcoming sessions, as they wait for cues from US inflation data that could determine the timing of the Fed’s response to staggering market conditions.
The CME FedWatch tool currently shows a 53.5% probability of a quarter-point interest rate cut by the Federal Reserve in September, while a half-point reduction is seen as less likely at 46.5%. Moreover, the market is pricing in another rate cut in November, with a 48% chance.
In China, some improvement was seen in inflation data, however, it's unclear if this signals a lasting break from China's disinflationary trend. The spotlight this week falls on earnings releases from internet leaders like Tencent, Alibaba, and JD.com.
Bitcoin and Ethereum, the top two cryptocurrencies by market capitalization, fell on Sunday, posting losses of 3.64% and 2.12% respectively, pressured by a large amount of liquidations across several exchanges, as market sentiment remains fragile. The overall cryptos market capitalization stands at 2.13 trillion dollars, from 2.27 trillion seen last week
For this week, focus is largely on U.S. consumer price index data, due Wednesday, for more cues on when the Federal Reserve will begin trimming interest rates. Investors are split over a 25 and 50 basis point cut in September.
Early in the week, EUR/USD attempted to push above the 1.1000 mark, but quickly retreated, reflecting the cautious market sentiment.
Traders remain focused on the potential for a rate cut in September. The market has fully priced in the likelihood of the Federal Open Market Committee (FOMC) initiating a rate-cutting cycle at its meeting on September 18.
Looking ahead, the spotlight will be on new inflation data, with the US Producer Price Index (PPI) and Consumer Price Index (CPI) reports due on Tuesday and Wednesday, respectively. Also on the agenda are US Retail Sales figures and the latest update from the University of Michigan’s Consumer Sentiment Survey.
In Europe, preliminary Gross Domestic Product (GDP) growth figures for the Eurozone are set to be released on Wednesday.
Gold prices remained stable on Friday following a sharp rise in the previous session, driven by a decline in U.S. Treasury yields as investors grew more confident in the likelihood of a Federal Reserve rate cut in September.
Despite Thursday's gains, gold posted a 0.34% decline for the week, largely due to a significant drop on Monday when investors liquidated positions amid a broad sell-off in equities.
Federal Reserve policymakers are increasingly confident that inflation is cooling sufficiently to consider interest rate cuts in the near future. However, they are likely to base their decisions on economic data rather than market volatility.
Looking ahead, investor attention will turn to the upcoming U.S. Consumer Price Index (CPI) report, which could provide further insights into the Fed's policy direction.
Oil prices ended higher on Friday, capping a strong week, driven by encouraging economic data and hints from Federal Reserve policymakers about possible interest rate cuts in September. Continued concerns over a potential escalation in the Middle East also fueled supply fears, further supporting prices.
On Thursday, several Federal Reserve policymakers expressed growing confidence that inflation is cooling, raising the likelihood of interest rate cuts. In addition, China's consumer price index rose at a slightly faster pace than anticipated, providing further support for oil prices.
Geopolitical tensions in the Middle East also played a crucial role in supporting oil prices. Increased airstrikes by Israeli forces in Gaza and concerns about potential retaliatory actions by Iran, following the recent killing of senior members of Hamas and Hezbollah, have heightened fears of disruptions to the region's oil supply. Additionally, attacks by Iran-aligned Houthi militants on international shipping near Yemen have added to the risk premium.
U.S. main indexes closed higher on Friday, effectively erasing the steep losses incurred since Monday's significant downturn, which was initially triggered by recession fears and the unwinding of global yen-funded carry trades.
On Thursday, Federal Reserve policymakers conveyed growing confidence that inflation is moderating sufficiently to permit forthcoming rate cuts. Market participants now turn their attention to the upcoming U.S. consumer price index (CPI) and retail sales figures for July, seeking further insights into the likelihood of a soft landing for the U.S. economy.
Despite recent volatility, all three major indexes remain substantially higher for the year, buoyed by robust earnings in tech-related megacap companies and optimism surrounding advancements in artificial intelligence.
On the earnings front, video game publisher Take-Two Interactive Software surged over 4% on Friday after forecasting growth in net bookings for fiscal years 2026 and 2027. Additionally, Expedia Group saw its shares rise by over 10% following a second-quarter profit report that surpassed analysts' expectations.
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