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What’s happening: The US dollar moved lower for a fourth consecutive session on Monday on speculations around the Federal Reserve’s possible monetary policy moves.
What happened: Recent labour market reports and remarks from Federal Reserve members triggered more speculations of rate cuts this year.
Although the US dollar fell versus most major curries, the USD/JPY forex pair recorded gains on suspected currency interventions by the Japanese government.
Why it matters: US payrolls data for April, released on Friday, showed the smallest job addition since October 2023. This sparked expectations of the Federal Reserve needing to cut interest rates to stimulate the US economy.
New York Fed President John Williams said that the US central bank will “eventually” slash interest rates, albeit without mentioning a timeframe for this. Richmond Federal Reserve President Thomas Barkin also said the current level of the benchmark policy rate is restrictive enough to bring inflation back to the central bank’s 2% target.
Following these events, there were increased speculations of a rate cut of around 50 basis points in 2024 and of the central bank brining rates lower by at least 25 basis points at its September meeting.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.1% to 105.05 on Monday, recording its longest losing streak since early March.
The Japanese yen has been under pressure for several months now and hit a 34-year low against the US dollar last week. This is due to elevated interest rates in the US versus the near zero rates in Japan.
The USD/JPY forex pair rose around 0.6% to 153.92 on Monday, after the yen recorded its biggest weekly gain since early December 2022 on the Bank of Japan’s suspected intervention to provide support to the currency.
What to watch: Markets will monitor the University of Michigan’s consumer sentiment data. Comments from Fed officials, including Fed Governors Lisa Cook and Michelle Bowman, will also remain in focus this week.
Investors will watch the Bank of Japan’s moves, with the government expected to intervene in the currency market again, to propel the yen.
Context: European stocks settled higher on Monday as investors assessed the latest economic data from the region.
Details: Markets in the Eurozone rebounded on Monday after recording sharp losses last week.
Data released on Monday showed the Eurozone’s industrial producer prices falling by 0.4% in March, in-line with market expectations. This followed a 1.1% decline in February.
The HCOB Eurozone services PMI rose to 53.3 in April, recording the strongest gain in almost a year. The latest reading also came in above the preliminary figure of 52.9 and higher than March’s level of 51.5.
The Stoxx 50 index gained 0.72% to settle at 4,956.96, while the broader STOXX Europe 600 added 0.53% to close at 508.22 on Monday.
Financial stocks were among the top performers, with shares of AXA adding around 2.5% after the insurer reported results for the first quarter.
Indra’s shares climbed around 9% after the company posted 40% profit growth for the first quarter. Volvo’s stock also added more than 1% after the company reported strong sales growth for April.
Germany’s DAX 40 rose 0.96% to 18,175.21, while France’s CAC 40 added 0.49% to close at 7,996.64. London’s FTSE 100 index remained closed for a public holiday on Monday.
What to watch: Investors await the release of data on construction PMI and retail sales from the Eurozone today. The HCOB Eurozone construction PMI, which fell to 42.4 in March, is expected to improve to 43.8 in April. Analysts expect retail sales in the Eurozone to grow 0.6% in March, after a 0.5% decline in February.
Other Markets: US trading indices closed higher on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.46%, 1.03%% and 1.13%, respectively.
Russia announced plans to hold tactical nuclear weapons drills following stronger military support from some Western European nations for Ukraine. The news sent the RUB/USD pair higher in forex trading this morning.
Australia’s retail sales fell by 0.4% in March, after a 0.2% gain in the earlier month, exerting pressure on the AUD/USD forex pair.
The Philippines said its annual inflation rate rose to 3.8% in April, from 3.7% in the prior month. However, the recent reading came in lower than market expectations of 4.1% and sent the PHP/USD pair higher in forex trading this morning.
Japan’s au Jibun Bank services PMI was revised lower to 54.3 in April, compared to a preliminary reading of 54.6. The move exerted pressure on the JPY/USD forex pair.
UK’s retail sales contracted by 4.4% year-over-year in April. The figure also missed market expectations of a 1.6% gain and sent the GBP/USD pair lower in forex trading this morning.
Germany’s balance of trade, construction PMI and factory orders, UK’s Halifax house price index, construction PMI and new passenger car registrations, France’s balance of trade, current account, construction PMI, payroll employment in private sector and foreign exchange reserves, Italy’s construction PMI, Singapore’s foreign exchange reserves, Mexico’s consumer confidence indicator, auto exports and car output, US Redbook index, RealClearMarkets/TIPP economic optimism index, Manheim used vehicle value index and total consumer credit, Canada’s Ivey Purchasing Managers Index, China’s foreign exchange reserves, as well as Brazil balance of trade.
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