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After a cautious opening due to inflation data from China that suggested weaker demand, Wall Street closed in the green. The Nasdaq increased by 0.18% while the Dow Jones increased by 0.62%. Less than 1% was lost in the price of crude oil, while gold finished level at $1,925 per ounce. Investors’ analysis of the Q2 earnings season will begin.
GBP/USD rose to the highest levels since April 2022, above 1.2850. Bank of England (BoE) Governor Andrew Bailey said that they had to “see the job through” regarding inflation. The UK employment report is due on Tuesday. EUR/GBP spiked to near 0.8600 and then pulled back to 0.8550.
Economic Data
The Consumer Price Index (CPI) in China remained unchanged in June compared to predictions for a 0.2% increase, which was lower than the country’s inflation rate. Under expectations of -5%, the Producer Price Index (PPI) decreased to -5.4% YoY. Evidence of deflation keeps the door open for additional stimulus, including fiscal as well as monetary measures.
Key Developments
During the American session, the US dollar declined as a result of data showing lower inflation forecasts and a drop in US Treasury yields. The yield on 10-year bonds dropped from 4.07% to 4.00%. The important US Consumer Price Index figure, which is due on Wednesday and will be crucial before the July 25–26 FOMC meeting, is anticipated by the market.
On Friday, Nonfarm Payrolls weighed on the US Dollar Index (DXY) which continued to slide on Monday. It dropped for the third consecutive day, falling below 102.00, posting the lowest daily close in a month.
The Japanese Yen outperformed, boosted by the recovery in bonds and ahead of US inflation data. USD/JPY continued to consolidate after being unable to break above 145.00 and dropped below 141.50, consolidating well below the 20-day Simple Moving Average (SMA) for the first time since April.
EUR/USD rose above 1.1000, and the momentum remains positive, supported by a weaker US Dollar. On Tuesday, the German ZEW Survey will be released, and also the final reading of the June German CPI that should show no surprises from the preliminary reading.
USD/CAD briefly traded above 1.3300 and then pulled back to end flat around 1.3280. On Wednesday, the Bank of Canada (BoC) will announce its interest rate decision, with expectations of a rate hike after Friday’s labor market data surpassed expectations.
Last month, when the Bank of Canada resumed the tightening cycle after a brief two-meeting hiatus, it gave the public notice. We anticipate the Bank to again raise its overnight target by 25 basis points to 5% on Wednesday in the absence of a material worsening in economic data during the previous five weeks.
The AUD/USD pair ended in a flat range and maintained its sideways trading range while being supported by the 0.6600 region. Australia’s consumer confidence data is due on Tuesday. The governor of the Reserve Bank of Australia, Philip Lowe, will speak on Wednesday.
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