• US dollar about to mark largest quarterly loss since 2022
  • Markets await more evidence on US rate cuts

 

The US dollar fell in European trade on Monday against a basket of major rivals, extending losses for the third straight session and about to mark 14-month lows before Fed Chair Jerome Powell’s speech.

 

The dollar is about to register its biggest quarterly loss since late 2022 as investors flocked out of dollar positions. 

 

The Index

 

The dollar index fell 0.25% today to 100.18, with a session-high at 100.48.

 

The index closed down 0.15% on Friday, plumbing 14-month lows at 100.16 following weak US personal spending data.

 

The index lost 0.35% last week, the fourth weekly loss in a row following a string of weak US data.

 

US Rates

 

According to the Fedwatch tool, the odds of a 0.5% Fed interest rate cut in November stood at 41%, with a 59% chance of a 0.25% rate cut.

 

Later today, Federal Reserve Chair Jerome Powell is scheduled to speak in Nashville and will answer audience questions.

 

Quarterly Trades

 

The dollar index is about to mark its first quarterly loss in three at 5.25%, and the largest since late 2022.

 

US 10-year treasury yields fell to 15-month lows at 3.599%, in turn reducing the appeal of the dollar.

 

The Fed launched a new cycle of policy easing in September, with the first interest rate cut since 2020.

 

The Fed achieved clear progress against inflation as it approaches the 2% target.

 

The Fed cut interest rates by an aggressive 0.5% in September, and hinted at another 0.5% rate cut before the year end.

  • Markets await German inflation data
  • Strong odds of October ECB rate cut
  • Euro about to mark biggest quarterly profit in two years

 

The euro rose in European trade on Monday against a basket of major rivals, resuming the gains against  the dollar after a short hiatus on Friday and approaching 14-month highs once more ahead of German and euro zone inflation data.

 

Traders also await a speech by European Central Bank President Christine Lagarde to gather more clues about the future of European interest rates this year.

 

Euro is on track for the biggest quarterly profit in two years on hopes for a reduction in the eurozone-US interest rate gap, as the Federal Reserve is expected to continue cutting interest rates aggressively.

 

The Price

 

The EUR/USD pair rose 0.35% today to $1.1198, with a session-low at $1.1150.

 

The pair closed down 0.2% on Friday on profit-taking off a 14-month high at $1.1214.

 

The euro was hurt back then by data that showed Spanish inflation slowed down more than expected.

 

Media Reports

 

According to media sources, the European Central Bank is leaving the October interest rate decision open for the time being.

 

Deutsche Bank is now expecting a faster rate of interest rate cuts by the ECB, with two consecutive 0.25% rate cuts starting October.

 

The German bank is not ruling out a 0.5% rate cut by the ECB in December.

 

European Rates

 

Following the media reports, the odds of a 0.25% ECB interest rate cut in October rose to over 80%.

 

Inflation Data

 

Now investors await important data later today on German inflation for September, followed tomorrow by inflation data for the whole eurozone, to gauge the likely path ahead for monetary policies.

 

Lagarde

 

Later today, ECB President Christine Lagarde will speak about monetary policies ahead of the European Parliament, and might provide clues on the future of interest rates and the fight with inflation.

 

Quarterly Trades

 

The euro is up 4.5% so far this quarter against the dollar, about to mark the biggest quarterly profit since the last quarter of 2022.

  • Incoming Japanese PM supports monetary easing
  • Early Japanese elections could weigh on yen
  • Yen about to mark best quarterly performance since 2008

 

The yen fell in Asian trade on Monday away from two-week highs against the US dollar amid profit-taking and after bearish remarks from incoming Japanese PM Shigero Ishiba. 

 

Nonetheless, the yen is still heading for its best quarterly performance since 2008 after an effort by the Bank of Japan to normalize monetary policies and raise interest rates.

 

The Price

 

The USD/JPY pair rose over 0.6% today to 142.95, with September 20 lows at 142.04.

 

The yen closed up 1.8% on Friday against the US dollar away from three-week lows at 146.49.

 

Last week, previous defense minister Shigero Ishiba was chosen as the leader of the governing Liberal Democratic Party in Japan. 

 

Ishiba

 

Shigero Ishiba’s leadership win at the Liberal Democratic Party in Japan paves the way for him to become the next Prime Minister.

 

Ishiba is expected to show new management and leadership at the party and government according to local media.

 

In recent remarks, Ishiba expressed support for the Bank of Japan’s efforts to achieve economic targets.

 

After his electoral win, Ishiba said that monetary policies should remain supportive due to current conditions, which stymied the yen’s advance in recent days.

 

Quarterly Trades

 

Yen is up a stunning 12% against the US dollar in the third quarter of the year, about to mark the first quarterly profit in three, and the largest since 2008.

 

It comes after the yen plumbed 38-year lows on July 3 at 161.95 due to the interest rate gap between Japan and the US.

 

Japanese authorities intervened more than once to boost the local currency and prevent excessive weakness.

 

Operational data from the BOJ showed it spent nearly 6 trillion yen, or $35 billion, on July 11 and 12 to support the yen, which triggered aggressive unwinding of the yen carry trades.

 

The BOJ also raised interest rates twice this year so far and announced plans to tighten policies and reduce purchases of government bonds gradually across two years.

 

Conversely, the Federal Reserve opened the way to ease policies and already started to cut rates aggressively by 50 basis points, reducing the rate gap with Japan to 475 points.

 

That helped the yen to mark 14-month highs at 139.58 against the dollar in September.

US stock indices rose on Friday on track for weekly gains, with both Dow Jones and S&P 500 marking fresh record highs.

 

Earlier government data showed US personal spending rose 2.2% in August, slowing down from 2.5% in July.

 

The Federal Reserve cut interest rates by 50 basis points last week and is likely to cut them by the same amount at the November meeting according to the Fedwatch tool.

 

US President Joe Biden said the US economy grew by over 10% during his presidential term, with savings and consumer spending all scoring gains.

 

Biden also pointed to today’s data, which showed inflation has slowed down to 2.2%, which are levels comparable to before the Covid 19 pandemic.

 

On trading, Dow Jones rose 1% as of 15:38 GMT to 42597, while S&P 500 rose 0.1% to 5752 points. NASDAQ bucked the trend with a 0.2% dip to 18145.

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