The U.S. Dollar is trading in stronger ranges across the board, showing resilience as stocks staged a partial recovery following a selloff triggered by cooling U.S. jobs data.
Overview
Labor swings have left economists and traders divided on how aggressively the Federal Reserve will cut interest rates. Futures on the Nasdaq 100 advanced after the underlying index ended last week, with its steepest decline since November 2022. Treasuries reversed some of their recent gains, with two-year yields rising for the first day in five. The choice facing Fed officials—whether to start easing gradually or to front-load rate cuts—is bound to be contentious.
With recessionary fears resurfacing, investors are scrutinizing economic data for clues on the likely rate path. Wednesday’s U.S. Consumer Price Index numbers are next on the radar. U.S. data showing weaker payroll growth reinforced the view that the labor market is cooling and sent stocks reeling. Traders reacted by increasing bets on a 50 basis-point Fed cut this month, although they are assigning higher odds to a 25 basis-point reduction.
The market’s cautious stance is further influenced by escalating Middle East tensions, prompting some haven buying. Wall Street’s fear gauge, the Cboe Volatility Index, remains elevated after closing at its highest in a month on Friday. There will be a few pieces of data out of the U.K., Euro-zone, and China that will impact the flows for those respective currency pairs, the European Central Bank policy decision on Thursday, and closing out Friday with the University of Michigan Consumer Sentiment Survey.
What to Watch Today…
- China’s National People’s Congress meets on Tuesday
- US CPI Wednesday
- European Central Bank Decision Thursday
- Monex USA Online is always open.
EUR ⇓
The shared currency is down slightly ahead of the key monetary announcement on Thursday. Prior to this week, the Euro had rallied more than 3% against the dollar this quarter, buoyed by the European Central Bank’s less aggressive stance on interest rate cuts compared to market expectations. While the ECB is likely to deliver a 25-basis-point rate cut this week, its language is expected to be less dovish, reiterating that the governing council is not pre-committing to a particular rate path. This cautious approach is influenced by persistent core, services, and wage inflation in the Eurozone. In contrast, the Federal Reserve has more room to reduce rates, with a real policy rate buffer significantly higher than that of the ECB. As a result, the Euro is expected to remain strong in the coming months, supported by the ECB’s measured policy actions and the differing rate cut trajectories between the ECB and the Fed.
MXN ⇑
The Mexican Peso is up by half a percent this morning, making it one of the few exceptions to the weakening of others to the Buck. Mexico’s annual inflation slowed in August, aligning with expectations and providing the central bank, Banxico, more room to consider another interest rate cut this month.
Consumer prices rose 4.9% year-over-year, slightly below the median estimate of 5.06%, while core inflation eased to 4.0%, at the top of Banxico’s target range. The central bank is expected to mull its second-straight rate cut in its September 26 decision, as recent political turmoil in the Mexican Congress adds to the uncertainty about the currency’s trajectory. We shall see if the Senate approves changes and passes judicial reforms.
