24/09/2024 - 07:47 UTCThe US dollar begun a moderate recovery, with the dollar index (USDX) adding around 0.09% to 0.14% to its value daily since Friday. Investors appear to stay on the sidelines ahead of a key report that could weigh heavily on the Fed’s future monetary policy decisions. The PCE price index data, the Fed’s preferred inflation gauge, is due on Friday, and could offer more cues on interest rates while inflation is still trending well above the Fed's 2% annual target.
According to the CME's FedWatch, the market is pricing in a 50.9% probability of a 0.25% rate cut in November. Bets for a 50 bps rate currently stand at 49.1%.
Wall Street's primary indices closed moderately higher on Monday, still hovering near record levels in a rather quiet session and ahead of a slew of more signals from the Federal Reserve this week. For the remainder of the week, price action could be driven key inflation data due on Friday and speeches from Fed officials and members of the rate-setting committee. The most notable speech is that of Fed chairman Jerome Powell on Thursday.
Oil prices traded moderately lower on Monday, with the two primary crude oil benchmarks WTI and Brent, down by 0.57% and 0.28% respectively amid a series of mixed readings on business activity from across the globe. Mixed PMI readings from the U.S., the euro zone, and Japan, had markets worry over a potential slowing of manufacturing activity, that would have a direct impact on crude oil demand.
In other news, data on regional business activity released from the eurozone, raised concerns about the growth outlook in the region. Data showed a major and unexpected contraction this month, with the bloc's decline in manufacturing accelerating. This downturn appears to be broad-based with Germany, Europe's largest economy, seeing its decline deepen. The German Ifo business climate index is due later in the session, and could provide more insight on the matter. Nonetheless, the Germany 40 remains elevated, trading right below record highs, as more stimulus measures were implemented from major export market China, but concerns over the region’s growth outlook have limited the gains.
For Tuesday, some price action could be seen upon the release of consumer confidence data from the US, the Richmond Manufacturing Index and the S&P/CS Composite House Price Index.
The EUR/USD pair lost ground on Monday, retreating by 0.43% as recent bullish momentum waned.
This marked one of the pair's weakest trading days in the second half of the year, following disappointing eurozone Purchasing Managers Index (PMI) data, which fell short of expectations. US PMI data also underperformed, albeit to a lesser extent.
On Monday, Chicago Fed President Austan Goolsbee offered cautious remarks, suggesting that further interest rate adjustments might be necessary.
Tuesday is expected to bring limited action for the EUR/USD, with little in the way of economic data from either side of the Atlantic.
Gold prices saw a slight uptick on Monday, reaching a new all-time high above $2,630, as growing expectations of a potential US Federal Reserve (Fed) rate cut in November boosted the metal.
Moreover, escalating tensions in the Middle East, particularly between Israel and Hezbollah, could dampen risk appetite and push gold prices higher. The Pentagon confirmed on Monday that the US is deploying additional troops to the region, as reported by the Associated Press.
Oil prices dipped on Monday as concerns over demand were heightened by weak eurozone business activity and a sluggish Chinese economy.
China, the world's largest oil importer, continues to grapple with deflation and sluggish economic growth, despite efforts to boost domestic spending through various policy measures.
Geopolitical concerns offered some support to oil prices, as Israeli airstrikes targeted Hezbollah positions on Monday. After nearly a year of conflict in Gaza, Israel is now turning its attention to its northern border, where Hezbollah has been launching rockets in support of Hamas.
U.S. stocks ended slightly higher on Monday as investors evaluated whether a new market trend would emerge following last week’s Federal Reserve rate cut.
The gains followed comments from Federal Reserve policymakers and steady factory activity data, extending last week’s market rally after the Fed’s decision to lower interest rates.
Investors focused on remarks from three Federal Reserve bank presidents—Raphael Bostic, Neel Kashkari, and Austan Goolsbee—seeking insight into the Fed's decision to begin its easing cycle with a significant 50 basis-point rate cut. All three officials expressed support for last week's rate cut and suggested further cuts could follow through the end of the year.
Looking ahead, Friday’s personal consumption expenditures (PCE) data for August—the Fed’s preferred inflation gauge—is expected to be the key catalyst for markets this week.
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