HG MARKETS:

Monday saw the U.S. dollar steadily hang onto its gains following Friday’s solid jobs report. This week will also see the release of important inflation data and the minutes from the most recent Federal Reserve meeting. The dollar index, which measures the US dollar against a group of six other currencies, was down slightly at 102.247. It saw its largest weekly gains in two years on Friday, rising 0.5% to a seven-week high.

Fears of a U.S. economic slowdown were allayed by the increase in US payrolls, which also strengthened the theory that the Fed will not need to drastically lower interest rates in order to maintain the economy and strengthen the dollar. According to CME Fedwatch, traders were seen almost completely eliminating bets on a further 50 basis point drop at the upcoming Fed meeting and pricing in a more than 90% chance of a 25 bps cut. This week’s highlights include speeches from numerous Fed officials, additional inflation figures, and the Fed’s September meeting minutes. During the meeting, the Fed lowered interest rates by 50 basis points and declared the beginning of an easing cycle, but it continued to state that further rate decreases would rely on evidence.

The unrest in the Middle East, which saw Israel attacking Hezbollah sites in Lebanon and the Gaza Strip on Sunday in advance of Monday marking the one-year anniversary of the strikes on October 7 that started its war, has also helped the safe-haven dollar.  A another example of the economic challenges facing the largest economy in the eurozone, German manufacturing orders fell 5.8% in August, which contributed to the euro’s depreciation. The EUR/USD fell 0.1% to 1.0965 in Europe. Later in the afternoon, the Eurozone’s August retail sales are expected to reveal how consumers are doing in these challenging times. In their scheduled speeches later on Monday, ECB chief economist Philip Lane, board members Piero Cipollone and Jose Luis Escriva, and President Christine Lagarde are expected to reiterate the brisk pace of further easing.

GBP/USD saw a minor decline to 1.3113 following a 1.9% decline previous week—the worst decline since early 2023. Chief Economist Huw Pill of the Bank of England stated on Friday that interest rate cuts should only be made gradually. A day earlier, Governor Andrew Bailey was reported to have suggested that the BoE should take more aggressive steps to reduce borrowing costs. Paring back early gains, the USD/JPY dipped 0.3% to 148.22 after surging to its highest level since mid-August. Growing skepticism about the Bank of Japan’s capacity to continue raising interest rates in the following months, particularly in light of the uncertain nature of the impending general elections in Japan, hurt the yen. The USD/CNY exchange rate was mostly stable at 7.0176, with Chinese markets being closed in observance of Golden Week.