07/05/2024 - 08:03 UTCThe dollar reached multi month highs against most major currencies last week, with the dollar index (USDX) hitting 106.4 and then declining sharply for three consecutive sessions to trade in a range between 104.76 and 105.18. Pressure on the dollar derived from the weak non-farm employment data reported on Friday and comments from Fed officials including Fed’s chairman who said that rate increases remain unlikely and New York Fed’s President John Williams who said that eventually the central bank will cut interest rates, although he did not give a time frame.
According to the CME Fedwatch tool, bets for a rate cut in June are currently at 8.7% while July and September stand at 29.2% and 49.7% respectively.
In other news, the yen is beginning to lose ground against the dollar this week, following sharp gains seen the week before. Last week it notched its strongest weekly gain since early December 2022, in what traders suspect was another round of intervention by Japanese authorities to stop the sharp decline in the Japanese currency. Japan was closed for a bank holiday on Monday, and traders remain alert for possibly another round of intervention.
Oil prices declined sharply, with the two main benchmarks WTI and Brent losing 6.6% and 7.13% of their values respectively in the past week with Israel looking into the terms of a ceasefire proposal from Egypt and Qatar, that Hamas has already accepted. According to Israel, the deal includes outcomes that it has not agreed to.
In Wall Street, sentiment appears improved following renewed hopes for a rate cut in September amid dovish comments from Fed officials and the softer-than-projected employment data and wage-growth inflation. In corporate news, Uber and entertainment giant Walt Disney report earnings later this week while Warren Buffett’s Berkshire Hathaway gained by almost 1% after reporting quarterly results that included a 40% jump in Q1 operating earnings from last year. Super Micro Computer Inc and Micron Technology Inc rose more than 6% and 4%, respectively, helping to lift the broader semiconductor sector.
Some price action could be observed later today, upon the release of UK construction PMI, Canada’s ivey PMI report, eurozone retail sales and US consumer credit.
EUR/USD posted rose on Monday after better-than-expected Purchasing Managers Index (PMI) figures from Eurozone early Monday before settling into familiar chart territory above 1.0750 ahead of Tuesday’s pan-European Retail Sales figures.
Monday’s HCOB Services PMI for April surprised to the upside, printing at 53.3 MoM versus the forecast steady hold at 52.9. On the other hand, the US Dollar comes under pressure due to firm speculation that the Federal Reserve (Fed) will start reducing interest rates from the September meeting.
Tuesday’s upcoming European Retail Sales will be the day’s key data print for the day’s session. The week’s US data docket remains quiet but various heads of the Federal Reserve (Fed) will be giving speeches this week.
Gold prices rose on Monday, after a recent drop in the dollar as softer-than-expected U.S. payrolls data saw market participants increasing bets on eventual interest rate cuts by the Federal Reserve.
The dollar’s losses were driven chiefly by Friday’s payrolls reading, which sparked increased bets that the Fed will begin cutting rates by September. While a cooling labor market gives the Fed some impetus to trim rates, its main point of contention remains the issue of sticky inflation.
Focus this week is on a string of addresses from top Fed officials, for more cues on interest rates.
Oil prices settled higher Monday on dwindling hopes for an end to the Gaza war as Israeli Prime Minister Benjamin Netanyahu reportedly said the deal, which was accepted by Hamas, was far from meeting Israel's demands.
Signs that a deal may not be as close as previously believed, forced traders to cut their bets easing geopolitical tensions in the Middle East that have kept an supply risk premium embedded in oil prices.
Oil prices was also supported renewed bets on a September rate cut by the Federal Reserve. Sooner rather than later rate cuts could help keep the economic growth intact, supported demand for oil prices.
U.S. stock indexes closed higher on Monday, as investors continued to gain hope that there was a greater chance of the Federal Reserve cutting interest rates this year.
Some less hawkish Fed comments and softer-than-expected nonfarm payrolls data saw investors increase their bets on a September rate cut.
Moreover, coupled with earnings season in corporate America surprising to the upside, this has given investors renewed positive moment in recent sessions while the first quarter earnings season is also set to carry on this week, with earnings from media giant Walt Disney Company and oil and gas majors Duke Energy Corporation and Occidental Petroleum Corporation due later today.
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