- US yields rebound boosts the dollar
- Markets await more clues about US rate cuts
The dollar rose in European trade on Monday after a short hiatus, amid active short-covering while US 10-year treasury yields rebounded as well.
Now investors await important US inflation data for July, which will provide important clues about US rate cuts this year.
The Price
The dollar index rose 0.1% today to 103.24, with a session-high at 103.13.
The index closed down 0.1% on Friday, the first loss in four days, thus approaching seven-month lows at 102.16.
The dollar index lost 0.1% last week, the third weekly loss in a row as traders fully priced in two Fed rate cuts in September and November.
US Yields
US 10-year treasury yields rose 0.65% on Monday, resuming gains and approaching two-week highs, in turn providing some support to the dollar.
US Rates
According to the Fedwatch tool, the odds of a 0.5% interest rate cut by the Federal Reserve in September stand at 46%, with a 54% chance of a 0.25% rate cut.
This week, crucial US consumer and producer prices data will be released and will provide important clues on the path ahead for US monetary policies.
- Markets await more clues about US rate cuts
- Gold might trade above $2500 for first time in history
Gold prices rose on Monday on track for the third profit in a row, marking one-week highs and moving towards record highs amid the prospects of multiple Fed rate cuts this year.
Now investors await a batch of important US inflation data for July later this week to gauge the likelihood of future US rate cuts.
The Price
Gold prices rose 0.6% today to $2445 an ounce, with a session-low at $2423.
On Friday, gold prices rose 0.15%, the second profit in a row, amid mounting geopolitical tensions.
The precious metal however lost 0.5% last week, the second weekly loss in the past three weeks on profit-taking off a record high at $2483.
US Rates
According to the Fedwatch tool, the odds of a 0.5% interest rate cut by the Federal Reserve in September stands at 46%, with a 54% chance of a 0.25% rate cut.
This week, crucial US consumer and producer prices data will be released and will provide important clues on the path ahead for US monetary policies.
The SPDR
Gold holdings at the SPDR Gold Trust remained flat on Friday at 846.91 tonnes.
- Euro targets $1.1
- Markets await US inflation data
Euro rose in European trade on Monday against a basket of major rivals, moving in a positive zone for the first time in five sessions against the dollar, amid a positive outlook with the common currency aiming to surpass $1.1 with hopes for a reduced US-eurozone interest rate gap.
Recent hot eurozone inflation data hurt the odds of another rate cut by the ECB in September, while the US Federal Reserve is heavily expected to cut rates next month.
The Price
The EUR/USD rose 0.15% to $1.0928, with a session-low at $1.0910.
Euro closed down 0.1% on Friday against the dollar on profit-taking off seven-month highs at $1.1008.
Euro rose 0.1% last week, the second weekly profit in a row amid speculation about a reduced interest rate gap with the US.
European Inflation
Recent European consumer prices data beat expectations for July in another sign of mounting inflationary pressures on the ECB.
The data, combined with aggressive remarks by Fed officials, reduced the odds of additional European rate cuts this year.
European Rates
The odds of a 0.5% ECB interest rate cut this year remain at less than 50% as markets await more growth and inflation data to gauge the path forward.
US Rates
According to the Fedwatch tool, the odds of a 0.5% interest rate cut by the Federal Reserve in September stands at 46%, with a 54% chance of a 0.25% rate cut.
Rate Gap
The US-eurozone interest rate gap is currently standing at 125 basis points and could easily shrink to 100 basis points in September, in favor of the US.
- Odds of additional Japanese rate hikes decline
- Markets await US inflation data
The yen lost ground in Asian trade on Monday against a basket of major rivals as the odds of additional interest rate hikes by the Bank of Japan this year tumbled following recent remarks by BOJ officials.
Now markets await important US data for July this week, which will cast light on the path ahead for US policies.
The Price
The USD/JPY rose 0.5% today to 147.12 per yen, with a session-low at 146.45.
Yen closed Friday up 0.4% against the dollar, the first profit in four days as US treasury yields dipped.
Yen also lost 0.1% last week against the dollar, the first weekly loss in a month and a half on profit-taking off seven-month highs at 141.68 yen per dollar.
Bearish Remarks
Bank of Japan Deputy Governor Shinichi Uchida said the central bank won’t raise interest rates when the markets are unstable.
He said that given the current turmoil, the BOJ will prefer to maintain current levels of monetary easing unchanged.
Japanese Rates
Naturally, following the remarks, the odds of a BOJ interest rate hike for the third time this year tumbled considerably, which would likely reduce the pressure to unwind carry trades.
US Rates
According to the Fedwatch tool, the odds of a 0.5% interest rate cut by the Federal Reserve in September stands at 46%, with a 54% chance of a 0.25% rate cut.
Rate Gap
Investors sold the yen mercilessly for months due to the massive interest rate gap between Japan and the US.
The rate gap created profitable opportunities, with traders borrowing cheap yen to invest in dollar assets with higher yields, the so-called Carry Trade.
However, after the BOJ and the Fed’s latest decisions in July, the rate gap between Japan and the US shrank to 525 basis points, the smallest such gap since July 2023.
And now investors expect the gap will shrink to 500 basis points by September as the Fed prepares a new rate cut.
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