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What’s happening: The US dollar moved higher on Tuesday, after recording losses in August.
What happened: The greenback hovered close to a two-week high versus the euro on Tuesday, ahead of a data-heavy week that is expected to provide more insights into the Federal Reserve’s upcoming rate decision.
However, the US dollar fell sharply against the Japanese yen, which has surged around 10% over the past two months.
Why it matters: While Federal Reserve Chairman Jerome Powell had said last month that the time had come to cut interest rates, the upcoming NFP (non-farm payrolls) report will influence the extent of the cuts.
Data released on Tuesday showed the US ISM manufacturing PMI improving to 47.2 in August, from 46.8 in the previous month. The figure, however, missed market estimates of 47.5. The latest reading signalled contraction in factory activity for 21 of the past 22 months.
Construction spending in the US slipped by 0.3% to annualised rate of $2,162 billion in July. The S&P Global manufacturing PMI was revised lower to 47.9 for August, versus a flash reading of 48.
Investors widely expect the Fed to cut interest rates by 25 bps (basis points) at its meeting in mid-September. There are some speculations of the central bank cutting rates by 50 bps at this meeting. Markets are pricing in rate cuts of 100 bps in 2024.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.2% to 101.83 on Tuesday, after shedding 2.2% in August, delivering its worst monthly performance since November 2023.
The EUR/USD forex pair fell around 0.3% to 1.1044, after hitting a two-week low of 1.1033 earlier in the session.
The GBP/USD shed around 0.2% to reach 1.3114. The forex pair recorded its biggest monthly surge in 10 months in August.
The USD/JPY pair declined around 1% to 145.48 on Tuesday, after the Bank of Japan governor reiterated that the central bank would continue to hike interest rates in case inflation and the economy performed as projected.
What to watch: The NFP report will be released on Friday, with markets projecting the US economy to add 165,000 jobs in August, higher than the 114,000 job adds recorded in July.
Data on job openings, due on Wednesday, and jobless claims data, scheduled for release on Thursday, will also remain in focus. The number of job openings in the US, which came in at 8.184 million in June, is expected to ease to 8.10 million in July.
Context: Equity markets in Europe settled lower on Tuesday, as investors assessed the latest economic reports.
Details: Data released by the British Retail Consortium showed total retail sales in the UK growing by 1% year-over-year in August, significantly lower than the 4.1% growth rate recorded in the year-ago month. Food sales surged 2.9% year-over-year in the three months to August, while non-food sales declined 1.7%. The number of M&As (mergers and acquisitions) in the UK declined to 385, from 463 between the first and second quarters of the year.
France’s government budget deficit narrowed to €156.91 billion in the January-to-July period, from €168.99 billion in the year-earlier period.
The STOXX Europe 600 Index fell 0.97% to close at 519.84 on Tuesday, with most sectors settling the session on a negative note.
Mining and tech stocks were among the worst performers. Shares of chipmaker ASML and Infineon fell more than 4% each, tracking the losses in Nvidia’s stock.
Food and beverages stocks bucked the overall trend, adding around 0.1% on Tuesday.
London’s FTSE 100 fell 0.78% to close at 8,298.46 on Tuesday. Germany’s DAX 40 declined by 0.97% to 18,747.11, while France’s CAC 40 lost 0.93% to settle at 7,575.10.
What to watch: Investors await the release of data on services PMI, composite PMI and producer price inflation from the Eurozone today. The HCOB Eurozone services PMI is expected to increase to 53.3 in August, from 51.9 in the previous month. The composite PMI is projected to rise to 51.2 in August, from 50.2 a month ago.
Analysts expect producer price inflation in the Eurozone to accelerate by 0.3% in July, following a 0.5% rise in June.
Other Markets: US trading indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 1.51%, 2.12% and 3.15%, respectively.
Germany is looking to provide six more IRIS-T SLM air defence systems to help Ukraine in its ongoing war with Russia. The news sent the RUB/USD pair lower in forex trading this morning.
Japan’s au Jibun Bank services PMI slipped to 53.7 in August, from a preliminary reading of 54.0. However, services activity expanding for the seventh month this year lent support to the JPY/USD forex pair.
Singapore’s S&P Global PMI rose to 57.6 in August, from 57.2 in the prior month. The latest reading signalled the fastest expansion in private sector since October 2022 and sent the SGD/USD pair higher in forex trading this morning.
Ireland’s AIB services PMI rose to 53.8 in August, from a three-month low of 53.6 in July, which lent support to the EUR/USD forex pair.
Australia’s Ai Group Industry Index for the manufacturing sector fell sharply by 11.3 points to a reading of -30.8 in August, which sent the AUD/USD pair lower in forex trading this morning.
Russia’s composite PMI and services PMI, South Africa’s S&P Global PMI and RMB/BER business confidence index, Spain’s services PMI and composite PMI, Italy’s services PMI and composite PMI, France’s services PMI and composite PMI, Germany’s services PMI and composite PMI, UK’s services PMI and composite PMI, US MBA mortgage applications, Redbook index, total vehicle sales, Fed’s Beige Book report and API crude oil stocks change, Brazil’s industrial production, composite PMI and services PMI, Canada’s balance of trade and Bank of Canada’s interest rate decision, as well as Turkey’s balance of trade, car production and total vehicle sales.
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