05/09/2023 - 07:52 UTCFollowing Monday’s quiet session due to a bank holiday in the US, the dollar posted a small correction, with the USDX declining by 0.14% for the day. The impact from the worsening labour market conditions, suggesting that the Federal Reserve could pause its rate hike cycle, still seems to be at play. Against some emerging currencies, the dollar tells a different story as it gained 1.59% against the South African Rand, 0.62% against the Mexican peso and 0.14% against the Chinese yuan.
The euro did not appear to be moved by recent comments from ECB President Lagarde, as she stated on Monday that central banks must pin inflation expectations at their targets at a time when changes in labour and energy markets as well as geopolitical turmoil are causing price swings.
Energy prices seem to have stabilized at highs last seen in November 2022, following consecutive daily gains last week. WTI closed almost unchanged on Monday while Brent was up by 0.26%. Part of the move could be attributed to positive growth and demand prospects as well as improved risk sentiment as China implemented measures to boost the country's economy, with Beijing planning further action including relaxing home-purchase restrictions.
The main US stock indices showed little change on Monday, due to a bank holiday in the US. For Tuesday, equity traders could shift their focus on earnings from Zscaler Inc and Asana Inc as well as U.S. monthly factory orders and a consumer confidence survey by the IBD/TIPP.
After a series of economic releases indicating that inflation is cooling down and labour market conditions are deteriorating, the overall consensus is that the U.S. economy is cooling without slowing sharply, reinforcing hopes that the Federal Reserve could pause rate hikes without deviating significantly from its inflation target. According to CME FedWatch markets are pricing in a 93% chance of the Fed holding steady on rates this month.
The EUR/USD pair posted a moderate increase on Monday following its lowest daily close in two months on Friday.
European Central Bank (ECB) President Christine Lagarde did not provide any new information on Monday. She emphasized the importance of central banks anchoring inflation expectations while relative price changes take place. The US Dollar experienced a modest pullback on Monday, as the session was quiet with US markets closed.
Later today, the final reading of the Services PMI in the Eurozone will be released and the Producer Price index for July also. In US Factory orders data is due today.
Gold prices experienced a minor decline on Monday amid a thin holiday trade on Monday. Market participants awaited more cues on the health of the U.S economy ahead of the Federal Reserve’s meeting this month as expectations for a pause in interest rate hikes is rising.
Data since the last policy meeting has further added to the impression that the U.S economy is cooling without cracking, bolstering the case against further rate increases and in turn, supporting zero-interest bearing gold.
Oil prices fell slightly from their strongest levels for the year on Monday as markets waited on Russia and the OPEC+ to outline more production cuts, while market participants are also focused on more Chinese cues this week.
Recent data from the U.S. indicated some cooling in the country’s labour market and economic growth, while U.S. fuel demand also came into question as the travel-heavy summer season comes to an end. Cooling U.S. economic activity increased hopes that the Federal Reserve will have limited headroom to keep raising interest rates, easing some concerns that high rates will crimp crude demand this year. Focus this week is also on Chinese trade data to gauge just how well crude demand is holding up in the country.
U.S. stock futures were trading in a mixed fashion on Monday night, with major indices remaining closed for the labor Day public holiday. US 500 traded almost unchanged while US 30 fall slightly and US Tech 100 traded slightly higher.
Ahead in Tuesday's session, market participants will be closely monitoring monthly factory orders, trade balance data and Markit's services PMI.
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