Market sentiment stays cautious early on Monday as traders await important economic data and events this week. This comes amid weak inflation signals from China and strong US jobs data. Additional concerns about the US-China trade tensions, political instability in the Eurozone, and doubts over China’s ability to boost its economy with stimulus are also weighing on sentiment.
Last Friday, upbeat US Nonfarm Payrolls (NFP) and the University of Michigan’s Consumer Sentiment Index, along with hawkish comments from Federal Reserve officials, boosted the US Dollar. San Francisco Fed President Mary Daly noted that inflation is close to the 2% target, and the labor market is in balance. At the same time, Cleveland Fed President Beth Hammack indicated the Fed may slow rate cuts soon. Fed Governor Michelle Bowman warned against cutting rates too quickly, fearing a resurgence in inflation. However, Chicago Fed Governor Alan Goolsbee emphasized that the pace of rate cuts will depend on economic conditions.
In this environment, the US Dollar Index (DXY) remains steady, holding onto Friday’s gains despite slight recent movements.
The US Dollar’s recovery is putting pressure on EURUSD and GBPUSD, with negative domestic factors adding to the downside. On Friday, German Industrial Production unexpectedly registered a contraction of 1.0% versus +1.2% expected growth, compared to -2.0% revised prior. However, the second estimate of the Eurozone Q3 GDP matched 0.4% initial forecasts.
That said, Bank of England (BoE) policymaker Swati Dhingra clearly said, “We should be easing policy more.” On the other hand, UK Trade Minister Jonathan Reynolds told the Financial Times (FT) that they will think carefully about retaliating against Trump tariffs. Meanwhile, chatters about a slow increase in UK employment due to the new budget and a reduction in British business optimism also exert downside pressure on the GBPUSD.
Meanwhile, USDJPY has pulled back, as a hawkish shift from the Bank of Japan (BoJ) and fears of intervention to defend the Yen weigh on the pair. Strong Q3 GDP growth and a positive Eco Watchers Survey from Japan also contributed to the retreat in USDJPY prices.
AUDUSD fell to a four-month low, driven by a cautious market mood, dovish expectations from the Reserve Bank of Australia (RBA), and disappointing data from China. Geopolitical tensions in the Middle East and fears of a trade war, fueled by US President Trump's tariff plans, are also keeping selling pressure on the Aussie.
However, the US Dollar's modest rebound ahead of Wednesday's Consumer Price Index (CPI) report, along with a lack of Fed commentary ahead of next week's FOMC, has helped support AUDUSD, preventing further declines for now.
Like the Australian Dollar, the New Zealand Dollar (NZD) is under pressure, with NZDUSD trading near its yearly low as traders worry about further rate cuts from the Reserve Bank of New Zealand (RBNZ) and economic challenges in the country.
Meanwhile, USDCAD bulls are pushing towards a 56-month high, buoyed by strong gains on Friday as a mixed Canada jobs report amplifies dovish concerns about the Bank of Canada (BoC). The Canadian Dollar (CAD) is also weighed down by falling crude oil prices, Canada’s key export.
Gold prices are resisting declines despite a firmer US Dollar, driven by its safe-haven appeal and China’s first increase in gold reserves in six months. XAUUSD buyers remain hopeful as the US Dollar shows a hesitant recovery, while trade war fears and rising geopolitical tensions add to gold's appeal.
Crude oil prices failed to rise following OPEC+'s decision to delay increasing supplies, as higher US oil output, along with concerns over increased production from Canada and Guyana next year, kept pressure on prices. Economic fears about China also contributed to the weakness in oil prices.
Bitcoin (BTCUSD) and Ethereum (ETHUSD) post daily losses after a strong rally last week, as traders await further signals to support the recent surge in cryptocurrencies. Notably, reports about Amazon shareholders urging the company to add Bitcoin to its balance sheet as an inflation hedge, combined with optimism surrounding Trump, are keeping buyers hopeful for continued gains.
With a lack of major data and events on Monday, market activity is expected to be subdued, with mixed sentiment holding sway. However, the week picks up steam with key events, including Tuesday's RBA Interest Rate Decision, Wednesday's US CPI, and Thursday's monetary policy announcements from the Swiss National Bank (SNB) and European Central Bank (ECB). Thursday will also see Australia's employment data and the US Producer Price Index, while Friday will bring monthly growth and production figures from the UK, keeping momentum traders busy.
The US Dollar is likely to hold its recent recovery amid sluggish market conditions and a growing hawkish bias from the Fed. This, along with ongoing concerns over China, could continue to weigh on the Antipodean currencies (AUD and NZD) and commodities. EURUSD and GBPUSD may remain under pressure, while USDJPY could surprise the market by bucking the trend.
Crude Oil might consolidate its losses if the US Dollar retreats, while Gold could recover thanks to its safe-haven appeal.
May the trading luck be with you!
