TL;DR Breakdown
- The U.S. dollar has experienced an upturn, recovering from its losses following the Friday payrolls data seeing a 0.2% increase.
- The upcoming release of US CPI data on Wednesday will play a crucial role in deciding whether the Fed and ECB will implement further rate hikes.
Description
The U.S. dollar has experienced an upturn, recovering from its losses following the Friday payrolls data. The Dollar Index, which checks the performance of the U.S. dollar against six other major currencies, exhibited a 0.2% increase, reaching 102.082. This rise allowed it to move away from the previous low of 101.73 on Friday. Meanwhile, investors … Read more
The U.S. dollar has experienced an upturn, recovering from its losses following the Friday payrolls data. The Dollar Index, which checks the performance of the U.S. dollar against six other major currencies, exhibited a 0.2% increase, reaching 102.082. This rise allowed it to move away from the previous low of 101.73 on Friday. Meanwhile, investors are anticipating the release of inflation data from the two largest economies in the world later this week.
Dollar rebounds from Friday’s lows
Data released on Friday revealed that the U.S. economy added fewer jobs than anticipated in July, leading to a decline in the dollar’s value, reaching a one-week low. Despite the disappointing job figures, the report also indicated positive wage gains and decreased unemployment, suggesting that the labor market remains tight and inflationary pressures persist.
Given this situation, the Federal Reserve is monitoring the incoming data for its September policy meeting. If the inflation numbers turn out to be lower, it will increase the likelihood that Fed policymakers will hold off on raising interest rates during the upcoming meeting. However, expectations point to core inflation having risen by 4.7% annually in July, which could influence the Fed’s decision-making process following the quarter-percentage-point rate hike implemented last month.
Meanwhile, the investors’ attention has been on Wednesday’s upcoming release of US CPI data. It is anticipated that the Core CPI will have decreased to 4.7% year-on-year in July, a slight drop from the previous 4.8%. The forthcoming weeks will also be crucial in deciding whether the Fed and ECB will implement further rate hikes during their September meetings. Notably, while U.S. inflation has been declining faster than other countries, economic growth expectations have shown considerable resilience.
Fed Governor Michelle Bowman made a case for the Federal Reserve to maintain its readiness to increase the policy rate if data indicate a halt in progress toward managing inflation. On the other hand, Atlanta Fed President Raphael Bostic advocated keeping monetary policy restrictive until at least 2024. Despite these differing viewpoints, the CME Group FedWatch Tool suggests that the market is currently assigning a nearly 30% probability of witnessing one more 25 basis points Fed rate hike before the year’s end.
Other currencies have been regaining against US dollar
After experiencing a decline over two days, resulting in a loss of almost 150 pips, the USD/JPY pair showed signs of recovery early on Monday, reclaiming its position above 142.00. The Bank of Japan’s Summary of Opinions for the July meeting highlighted the suggestion of one member to conduct Yield Curve Control (YCC) with greater flexibility. The move would allow the bank to prepare for continued monetary easing while being agile in responding to both potential upsides and downsides risks.
The Indian rupee on the other hand opened stronger against the U.S. dollar as the foreign unit weakened amid a less-than-expected job rise and signs of the Federal Reserve keeping interest rates on hold for some time. Monday’s opening rate for the rupee versus the dollar was Rs 82.71, up 13 paise.
Meanwhile, following the release of the July labor market data, the benchmark 10-year U.S. Treasury bond yield retreated, leading to a decline in Gold prices, which then closed the last trading day of the week in the red. However, with the 10-year yield remaining comfortably above 4% on Monday, the XAU/USD pair struggled to build on the gains from Friday and traded below $1,940.
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