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What’s happening: The euro recorded gains versus the US dollar on Monday, as investors monitored the latest economic reports.
What happened: The US dollar traded close to its weakest levels of 2024 on Monday, with speculations of the Federal Reserve beginning to cut its benchmark interest rate.
The euro gained strength after the release of positive data, taking the EUR/USD forex pair near the year’s high of $1.1201.
Why it matters: Data released on Monday showed the Eurozone’s trade surplus at €21.2 billion in July, higher than the €6.7 billion surplus recorded in the year-ago month. The figure also surpassed market estimates of €14.9 billion by a wide margin. Exports surged 10.2% year-over-year to €252 billion, while imports rose by a slower 4% to €230 billion in July.
Eurozone’s wages rose 4.5% year-over-year in the second quarter, compared to a 5.2% increase in the first quarter, which was the biggest surge since the final quarter of 2022. Hourly labour costs climbed by 4.7% year-over-year in the second quarter, easing from the 5% rise in the first quarter.
With the Federal Reserve scheduled to announce its rate decision on Wednesday, there were growing speculations of a cut of as much as 50 basis points (bps). Expectations of an outsized interest rate cut exerted pressure on the US dollar, which in turn provided a boost to the EUR/USD.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.4% to 100.70 on Monday, close to the year’s low of 100.51 recorded in August.
The EUR/USD forex pair jumped overnight to trade at 1.1138. The STOXX Europe 600 Index fell 0.16% to settle at 515.11 on Monday.
What to watch: Investors await the release of economic data on ZEW Economic Sentiment Index from the Eurozone today. The ZEW Indicator of Economic Sentiment for the Eurozone, which dipped 25.8 points to a nine-month low of 17.9 in August, is expected to weaken further to 17.6 in September. Analysts also expect Germany’s ZEW Indicator of Economic Sentiment to fall to 17.1 in September, from 19.2 in August.
Context: US equity markets closed mixed on Monday, with the Dow Jones index hitting a new record high during the session.
Details: The Federal Reserve will begin its policy meeting today and is scheduled to announce its interest rate decision on Wednesday. While markets have already priced in a rate cut, there are growing speculations of a cut of 50bps.
Data released on Monday showed the NY Empire State Manufacturing Index surprisingly rising to 11.5 in September. This marked the strongest level since April 2022 and came in above the reading of -4.7 recorded in August. The figure was also much better than market expectations of a reading of -3.9. The latest reading signalled that New York’s business activity grew for the first time in nearly a year.
Shares of chip manufacturers fell on Monday, after recording gains last week. Shares of Nvidia and Arm Holdings declined by around 2% and 6%, respectively, while Advanced Micro Devices’ stock remained flat. Apple’s shares fell around 2.8% following reports signalling weaker-than-expected demand for the new iPhone 16 series.
The Dow Jones index jumped 0.55% to settle at 41,622.08, while the S&P 500 rose 0.13% to close at 5,633.09 on Monday. The Nasdaq 100 shed 0.47% to close at 19,423.06.
What to watch: Investors await the release of economic data on retail sales, industrial production and total business inventories from the US today. Retail sales in the US, which surged 1% in July, are expected to grow by 0.2% in August.
Analysts expect US industrial production to remain flat in August, following a 0.6% decline in the previous month. Total business inventories in the US, which grew by 0.3% in June, are projected to rise by 0.4% in July.
Other Markets: European indices closed mostly lower on Monday, with the DAX 40 and CAC 40 down by 0.35% and 0.21%, respectively, and the FTSE 100 up by 0.06%.
Iran’s President Masoud Pezeshkian said his government had not provided any weapons to Russia since assuming office last month. Following the news, the RUB/USD remained mostly flat in forex trading this morning.
Singapore’s non-oil domestic exports surged by 10.7% year-over-year in August. This being the second straight month of gains lent support to the SGD/USD forex pair.
Colombia’s retail sales grew by 1.6% year-over-year in July. This marked an acceleration from the 1.5% gain recorded in June, which sent the COP/USD pair higher in forex trading this morning.
Israel’s economy expanded at an annualised rate of 0.7% in the second quarter, versus a 17.2% surge in the first quarter, exerting pressure on the ILS/USD forex pair.
Turkey’s government recorded a budget deficit of ₺129.6 billion in August versus a year-ago surplus of ₺51.3 billion, which sent the TRY/USD pair lower in forex trading this morning.
India’s wholesale prices, South Africa’s FNB/BER consumer confidence index, Germany’s ZEW current conditions, Canada’s housing starts and inflation rate, US Redbook index, capacity utilization, manufacturing production, NAHB/Wells Fargo housing market index and API’s crude oil inventories, as well as India’s balance of trade.
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