- Odds of a 0.25% European interest rate cut climb
- Odds of a 0.5% US interest rate recede
Euro fell in European trade on Monday against a basket of major rivals, moving in a negative zone for the second day in a row against the dollar as hopes for a reduced US-eurozone interest rate gap receded.
Recent eurozone inflation data boosted the odds of a 0.25% ECB interest rate cut in September, while somewhat bullish remarks from Federal Reserve officials reduced the odds of a 0.5% Fed rate cut this month.
The Price
The EUR/USD pair rose 0.3% today to $1.1046, with a session-high at $1.1091.
The pair closed down 0.25% on Friday, the first loss in three days, moving away from one-week highs at $1.1155.
Euro rose 0.35% last week against the dollar, the fifth weekly profit in six weeks on prospects of aggressive US rate cuts this year.
European Rates
The European Central Bank cut interest rates by 25 basis points in June and will likely cut them by a similar amount in September as prices slowed down and inflation approached medium-term targets.
However, subsequent policy decisions by the ECB remain unclear as the eurozone enters a riskier stage.
US Rates
New York Fed President John Williams said it’s time to cut interest rates but expressed little enthusiasm for a large 0.5% cut.
Williams said as inflation heads towards 2% and the economy stabilizes, it’s now suitable to ease policies and reduce interest rate targets in a gradual manner.
Following the remarks, the odds of a Fed 0.25% interest rate cut in September surged from 31% to 69%, while the odds of a 0.5% rate cut fell to 31%.
Rate Gap
The current eurozone-US interest rate gap stands at 125 basis points in favor of the US and will likely remain unchanged this month.
- World’s third largest economy grows by less than expected in second quarter
- US yield rebound pressures yen
Yen fell in Asian trade on Monday against a basket of major rivals, while giving up four-week highs against the dollar and about to mark the first loss in five sessions on profit-taking.
The Japanese economy grew by less than expected in the second quarter, which reduced the odds of a Japanese interest rate hike at the September 20 meeting.
Yen is also pressured by the rebounding US 10-year treasury yields ahead of American inflation data later this week.
The Price
The USD/JPY rose 0.6% to 142.99 yen per dollar, with a session-low at 141.94.
The yen rose 0.85% on Friday, the fourth profit in a row, with a four-week high at 141.76 as US treasury yields and risk appetite fell in the markets.
Yen rallied 2.7% last week against the dollar, marking the largest weekly profit since late July on strong Japanese wages data and bullish remarks from a BOJ official.
Japanese GDP
Final data from the Japanese government showed GDP grew 0.6% in the second quarter, below the expected 0.7% growth rate, and after a 0.6% contraction in the first quarter.
The data reduced the pressure on Bank of Japan’s policymakers and dragged down the odds of a Japanese interest rate hike in September to below 20%.
US Yields
US 10-year treasury yields rose 0.9% on Monday, holding above 15-month lows at 3.650% and about to mark the first profit in five sessions.
Higher US yields boost the dollar against its main rivals, with investors now waiting for crucial August inflation data later this week.
According to the Fedwatch tool, the odds of a 0.5% Federal Reserve rate cut in September stood at just 31%, while the odds of a 0.25% rate cut stood at 69%.
Most cryptocurrencies lost ground on Friday as risk appetite weakened following underwhelming US jobs data.
The US payrolls report showed the economy added just 142 thousand jobs in August, below estimates of 161 thousand.
According to the Fedwatch tool, there’s a 55% chance the Federal Reserve will cut interest rates this month by 0.25%, and a 45% chance of a 0.5% rate cut.
Despite the tepid data, US President Joe Biden lauded the data and deemed it historic in terms of progress in the labor sector.
Otherwise, New York Fed President John Williams said inflation is sustainably falling towards the 2% inflation target, and the time is ready for rate cuts.
Ethereum
On trading, ethereum fell 6.2% on Coinmarketcap as of 20:43 GMT to $2211.3, marking a massive weekly loss of 12%.
Oil prices lost ground on Friday, extending their losses amid concerns about a supply glut and weak demand, sending prices sharply down this week.
Bank of America reduced its estimates for Brent prices in 2025 to $75 a barrel from $80 previously, as global GDP growth slows down and oil demand softens.
Several experts also pointed to the ongoing ramifications of the constant attacks on oil tankers in the Red Sea, forcing ships to take the long route away from the Suez Canal.
On trading, Brent November futures fell 2.25% today, or $1.63 to $71.06 a barrel, with a weekly loss of 7.65%.
US crude futures due in October fell 2.15% today to $67.67 a barrel, with a hefty weekly loss of 8%.
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