The dollar and yen gained ground against major currencies, reflecting a cautious sentiment among traders ahead of critical US economic data scheduled for later this week. The dollar index, a measure of the greenback’s strength, reached a two-week high, marking its fifth consecutive day of gains. Meanwhile, the yen rebounded after four days of depreciation against the dollar, signaling a shift in market dynamics.
Market participants are closely monitoring the US economic outlook, particularly with regard to the Federal Reserve’s monetary policy trajectory. The Bank of Japan’s policy rate is anticipated to reach 0.5% by March of next year, while the Federal Reserve’s funds rate is projected to be around 4.5%. This substantial 400 basis-point differential suggests continued yen weakness, reinforcing the broader trend.
Attention is now turning to American manufacturing data, which will be released on Tuesday. This report is expected to provide further insight into the health of the US economy, setting the stage for a week filled with significant economic indicators. The week’s climax will come on Friday with the release of nonfarm payrolls data, a key indicator that could shape the Federal Reserve’s next move.
Current market pricing indicates the possibility of the US entering an easing cycle this month, with a one-in-four chance of a 50 basis-point rate cut. However, there are concerns that the market may be underestimating the Fed’s cautious approach heading into the September meeting. Should the Fed adopt a more measured stance, the dollar could regain lost ground as market expectations realign with the central bank’s outlook.
Asian markets are also on alert for any new signs of economic distress in China. Recent data revealed that Chinese factory activity contracted for the fourth consecutive month in August, highlighting ongoing challenges for the world’s second-largest economy in achieving its growth targets for the year.
In the commodities sector, oil prices saw a modest uptick following Libya’s declaration of force majeure at a key oil field. This development has contributed to widening shutdowns, reducing daily global oil supplies by nearly one million barrels, further complicating the outlook for energy markets.