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The U.S Dollar Index, a basket of six currencies that trades against the US Dollar, retreated on Monday, driven by a risk-on impulse, and falling US Treasury bond yields, ahead of the Federal Reserve’s September meeting. U.S dollar remained near a six-month high in muted trading on Monday as market participants awaited interest rate decisions this week by the Federal Reserve, Bank of England, and Bank of Japan. Resilient U.S. growth has fuelled a rebound in the dollar in recent weeks though the rally will likely be tested by a gauntlet of data and Wednesday's Fed interest rate decision.
The Canadian Dollar continued to outperform, causing USD/CAD to reach its lowest daily close in over a month, falling below 1.3500. Canada is set to release the August Consumer Price Index (CPI), with expectations of an annual rate rebounding to 3.8% from 3.3%. This would signal a second consecutive acceleration in CPI.
Energy prices continued trading with a positive momentum, with both Brent and WTI starting the week with gains of 0.10% and 0.56% respectively as expectations of a supply deficit stemming from extended output cuts by Saudi Arabia and Russia as well as weak shale production outweighed concerns about demand. Gold prices gained, helped by a slight pullback in the dollar as investors awaited key central bank policy decisions this week.
Wall Street closed little changed on Monday as market participants looked ahead to the U.S. Federal Reserve's expected decision to leave key interest rates unchanged on Wednesday.US main indices seesawed for most of the session to eke out nominal gains at the close. The US 30 rose 0.05%, the US 500 added 0.147% and the US Tech 100 edged up 0.14%.
Later Today, housing data including Housing Starts and Building Permits will be released. The FOMC (Federal Open Market Committee) meeting begins. Eurostat will release the final reading of the Eurozone Consumer Price Index (CPI), which is expected to offer no surprises. Also, they will publish the July Current Account figures.
The EUR/USD rose on Monday and approached the 1.0700 level before losing momentum. This upward movement was driven by a correction in the US Dollar, on a relatively quiet session.
Last Thursday, the European Central Bank (ECB) hiked interest rates by 25 basis points as expected, but the Euro weakened afterwards, and the debate now shifts to how long rates will remain at current levels.
The FOMC meeting begins on Tuesday, and no change in rates is expected. The focus will be on the statement, economic projections, and Chair Powell's comments. This week's data includes the preliminary PMIs, which provide the first glimpse of activity in Europe and the US during September.
Gold prices gained on Monday, ending the session 0.56% higher near $1934.00 per ounce helped by a slight pullback in the dollar as investors awaited a series of key central bank policy meetings this week, with the U.S. Federal Reserve widely expected to hit pause on interest rate hikes.
The precious metal saw some gains in recent sessions as strong inflation and economic activity data failed to convince markets that a U.S. interest rate hike was imminent. But gains were also limited as the dollar raced to six-month highs on the data.
Oil prices rose on Monday as expectations o a supply deficit outweighed concerns about demand. U.S. oil output from top shale-producing regions is also expected to fall for a third month in a row in October to its lowest level since May 2023, the U.S. Energy Information Administration said in a monthly report.
According to analysts, Saudi Arabia and Russia's output cuts could lead to a 2 million bpd deficit in the fourth quarter.
U.S. stocks showed a modest recovery on Monday, after a significant drop in the previous session, as Wall Street anticipates the Federal Reserve's upcoming decision on interest rates. U.S main indexes posted minor gains as market participants, with few catalysts showed little conviction heading into the Fed's two-day monetary policy meeting.
The week's main event is the Fed's policy meeting, which is expected to culminate in a rate hike pause, leaving the Fed funds target rate unchanged for the second time since March 2022, when the central bank fired its opening salvo in its battle against inflation.
Ahead in Tuesday's trade, housing starts, and preliminary building permits will be closely monitored by market participants, ahead of the Federal Reserve's key interest rate decision and statement later this week.
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