Rising expectations of significant rate cuts by the Federal Reserve on Wednesday are keeping the US Dollar under pressure early Monday, especially during a quiet Asian session. The greenback is having trouble gaining strength despite ongoing geopolitical concerns related to the US Elections, the Sino-American trade war, and tensions in Gaza. Additionally, China released several disappointing economic reports over the weekend, but the market's reaction is muted due to holidays in Beijing and Tokyo on Monday. Traders are waiting for Wednesday's Federal Open Market Committee (FOMC) meeting to hear about the September monetary policy decisions.
Despite global economic concerns and geopolitical issues providing some support for the US Dollar, it remains weak as investors anticipate a 0.50% rate cut by the Federal Reserve. Consequently, the US Dollar Index (DXY) is experiencing a three-day losing streak, overlooking the positive University of Michigan (UoM) Sentiment data from Friday due to weaker inflation and employment signals.
On Friday, several European Central Bank (ECB) officials echoed President Christine Lagarde's support for gradual rate cuts. This stance made it harder for EURUSD buyers, despite ongoing pressure on the US Dollar. However, the Euro saw some support from positive Eurozone Industrial Production data for July, which came in at -0.3% compared to -0.5% previously. This improvement helps boost the Euro as the market anticipates the Federal Reserve's rate cut. With this, the Euro pair approaches a three-week-long descending resistance line surrounding 1.1120.
Concerns about the UK's economic changes and the Bank of England's expected cautious stance on Thursday are making it tough for GBPUSD buyers, even though the pair has risen slightly after its first weekly gain in three weeks. Notably, the UK's house price indicator saw its biggest increase in September since 2016. Meanwhile, USDJPY sellers remain in control due to strong expectations for the Bank of Japan and growing speculation about a 50 basis points rate cut by the Fed.
AUDUSD benefits the most from the US Dollar’s weak performance ahead of the FOMC meeting, following a weekly gain. Meanwhile, NZDUSD recovers from last week’s losses despite disappointing data from China and New Zealand. In contrast, USDCAD pauses its two-week upward trend, even though the Bank of Canada (BoC) Governor appeared cautious in a weekend interview with the Financial Times. Additionally, the recent halt in crude oil’s gains is putting pressure on the Canadian Dollar’s recent strength.
The US Dollar's weakness and rising geopolitical tensions helped Crude Oil end a three-week losing streak after hitting its lowest level since May 2023. However, weekend data from China and concerns about increased OPEC+ output are limiting further gains in oil prices.
Gold is benefiting from market anxiety ahead of major central bank decisions this week, including those from the Fed, BoE, and BoJ, as well as growing geopolitical tensions. Despite this, its potential for further gains seems limited as it nears the $2,600 mark.
Concerns about tighter regulations are putting pressure on crypto buyers, especially in the context of US election uncertainties. As a result, Bitcoin (BTCUSD) and Ethereum (ETHUSD) have both fallen for the third consecutive day after recent weekly gains. However, it's important to note that increased network activity for Ethereum suggests fewer obstacles for Ethereum buyers.
Looking ahead, inflation data from Canada and the UK, along with the US Empire State Manufacturing Index and Retail Sales, will be closely watched by traders before Wednesday’s FOMC meeting. With expectations for a dovish Fed, the US Dollar might experience further declines leading up to the Fed’s interest rate decision. However, if the Fed cuts rates by 25 basis points and avoids signaling a more dovish stance, it could help the USD recover some losses. This scenario might lead to a pullback in Gold prices and put pressure on EURUSD. Meanwhile, GBPUSD and USDJPY could be volatile ahead of the Bank of England (BoE) and Bank of Japan (BoJ) meetings, and currencies like the Australian and New Zealand Dollars might lose some of their recent gains due to concerns about China and cautious market sentiment.
May the trading luck be with you!
