Fundamentals Favor US Dollar
On Friday morning. the U.S. dollar index initially came under pressure when the U.S. employment report was released but closed higher despite all the downward revisions in nonfarm payrolls for previous months.
Disappointing data in Asia and Europe sent the greenback higher today, and it is at the highest level since March 9.
Interest rate differential expectations remain favorable for the greenback, especially against the European currencies, since the U.S. economy appears to be holding up relatively well compared to economies in Europe.
Higher prices are likely for the U.S. dollar and lower prices are likely for all the other major currencies.
Producer prices in the euro area fell 7.6% year-on-year in July of 2023, which is in line with market estimates, and accelerating from the 3.4% decline in the previous month. This marked the third consecutive drop in producer prices and was the steepest rate since 2009.
The decline in euro zone business activity accelerated more quickly than initially believed last month as the services industry fell into contraction. HCOB’s final Composite Purchasing Managers’ Index dropped to 46.7 in August from July’s 48.6, which is the lowest level since November 2020.
Business activity in the U.K.’s services sector fell last month for the first time since January, although the drop was less than initially estimated. The S&P Global/CIPS Purchasing Managers’ Index for the U.K.’s services sector fell to 49.5 in August from 51.5 in July, which is a seven-month low but above an earlier estimate.
The Reserve Bank of Australia maintained its cash rate at 4.1%, extending the rate pause for a third consecutive month, which was in line with the market consensus.
STOCK INDEX FUTURES
Stock index futures are mixed to lower.
The 9:00 central time July factory orders report is expected to show a 2.6% decline.
Major downtrend lines were taken out to the upside last week as the fundamentals have improved recently in the form of expectations of a less hawkish Federal Reserve.
INTEREST RATE MARKET FUTURES
Futures are lower.
Financial futures markets are predicting there is a 93% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at its September 20 policy meeting, and there is a 7% probability of a 25 basis point increase.
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