03/12/2024 - 07:58 UTCThe U.S. dollar posted a mild recovery against most major currencies on Monday, with the dollar index (USDX) up by 0.33% ahead of a critical week in terms of economic data that may impact the prospect of U.S. rate cuts. Some support was seen in the dollar recently following demands by the U.S. President-elect Donald Trump on Saturday that BRICS member countries commit to not creating a new currency that could replace the dollar or face 100% tariffs.
Market participants are closely watching U.S. employment data due on Friday to refine their predictions regarding a potential interest rate cut by the Federal Reserve later this month. While analysts anticipate a 195,000 job gain in November, October's employment data could be subject to adjustments due to factors such as adverse weather, labor disruptions, and a low survey participation rate. The unemployment rate is projected to rise slightly to 4.2%.
According to the CME FedWatch Tool, market participants are currently assigning a 74.5% probability to a 25 basis point interest rate cut by the Federal Reserve. However, there is a significant 25.5% probability that the Fed will maintain interest rates at their current level.
US stock markets soared to fresh highs on Monday, fueled by a rally in major tech companies. Investor optimism surrounding artificial intelligence persisted, driving gains in the tech sector. This momentum followed Washington's recent export restrictions on 140 Chinese firms, aimed at limiting China's access to cutting-edge chips and equipment crucial for AI development.
The Dow Jones Industrial Average saw strong performances from tech giants, with Microsoft Corporation leading the pack at 1.77% growth, followed by Amazon.com Inc at 1.36% and Apple Inc at 0.95%. Investors now turn their attention to the earnings report from Salesforce Inc, due for release later this week.
For the Tuesday, markets will most likely be focusing on the JOLTS Job Openings employment data, speeches from FOMC members Kugler and Goolsbee and earnings reports from Salesforce and Zuora. Later this week, some price action is expected upon the release of Non-Farm Payrolls report, the US unemployment rate, a speech by Federal Reserve’s Jerome Powell and a Preliminary consumer sentiment and inflation expectations survey by the University of Michigan.
EUR/USD began the week on a weaker footing, slipping back into the 1.0500 range. Monday’s trading saw the pair lose nearly 0.8%, reflecting the waning momentum of a short-lived rebound attempt.
The US dollar found strength as the latest Purchasing Managers Index (PMI) data showed a slight improvement. In Europe, the economic calendar is sparse for the early part of the week, leaving market participants to focus on a series of European Central Bank (ECB) speeches.
Gold prices ended the session with minor losses on Monday as the precious metal faced headwinds from a robust US Dollar, bolstered by easing geopolitical tensions and pointed remarks from former President Donald Trump regarding BRICS nations.
Gold prices extended its losses after Trump issued a stark warning to BRICS countries, stating that any move away from the US Dollar could prompt 100% tariffs and jeopardize their access to the US economy.
Geopolitical developments provided a mixed backdrop for markets. US officials expressed concern over the stability of the Lebanon ceasefire, warning that renewed clashes between Israel and Hezbollah could escalate tensions.
Oil prices remained relatively stable on Monday, balancing optimism over improving Chinese factory activity against concerns that the U.S. Federal Reserve might maintain interest rates at current levels in December.
A private-sector survey revealed that China’s factory activity in November expanded at its fastest pace in five months, fueling optimism for stronger demand. However, these gains were tempered by cautious market sentiment over the Fed’s potential interest rate decisions.
Middle Eastern tensions remained in focus. A ceasefire between Israel and Lebanon—enforced last Wednesday—showed signs of fragility. On Monday, the Israeli military reported strikes on "terror" targets in Lebanon, amid mutual accusations of ceasefire violations between Israel and Hezbollah.
The US Tech 100 and US 500 reached record closing highs on Monday while US 30 ended the session lower, driven by gains in tech-related shares after a robust November for the market. Investors are now focusing on this week’s economic data, particularly Friday’s highly anticipated monthly jobs report.
Investors processed comments from Federal Reserve Governor Christopher Waller, who indicated he might support a quarter-point rate cut at the Fed’s Dec. 17-18 meeting, noting that monetary policy remains restrictive. The Fed has already cut rates twice this year, with a half-point reduction in September followed by a quarter-point cut in November.
As December unfolds, market participants are watching for clarity on U.S. fiscal policy under the new administration and awaiting key economic data that could shape the Federal Reserve’s next steps on interest rates. Investors remain cautiously optimistic but acknowledge lingering uncertainties.
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