The offshore yuan strengthened as the US dollar softened and China’s central bank established a daily reference rate stronger than anticipated. These movements precede a week packed with crucial economic data, notably the release of the Federal Reserve’s preferred inflation measure due on Friday. Investors are keenly eyeing the core personal consumption expenditures (PCE) index, which excludes food and energy costs, with expectations of a 0.3% rise following its most significant monthly increase in a year.
In addition to the US data, inflation figures are expected from Australia, later in the week. These releases will provide valuable insights into the trajectory of rising prices as investors strategize for potential rate adjustments.
US equity futures remained largely unchanged following a subdued end to the week on Wall Street, where the S&P 500 edged down by 0.1% and the Nasdaq index posted a similar marginal increase on Friday.
The recent uptick in the dollar marks a notable shift in investor sentiment towards the world’s reserve currency. Initially, expectations leaned towards a weaker dollar against its counterparts as the Fed hinted at rate cuts. However, the prospect of rate cuts by other major central banks has reignited interest in the dollar. Anticipated Fed cuts have revived enthusiasm for the “bond steepener trade,” wherein investors opt for short-dated US bonds that promise attractive short-term gains amid falling rates.
In the commodities market, oil prices rebounded after a three-day decline, buoyed by indications of a tightening market driven by sanctions, geopolitical tensions, and OPEC+ supply reductions. Meanwhile, gold saw a modest uptick, extending its weekly gains.