The dollar index fell to a 7-week low on Monday, finishing down 0.02%, influenced by easing geopolitical tensions in the Middle East that reduced safe-haven demand. A significant drop in WTI crude oil prices by 5% also lowered inflation expectations, potentially prompting a loosening of monetary policy by the Federal Reserve. The July ISM manufacturing index rose to 55.6, the highest in four years, exceeding expectations of 53.9. The markets are pricing in a 67% likelihood of a 25 basis point rate hike at the upcoming FOMC meeting on September 15-16.
In Europe, the euro currency dropped 0.12% after it was unable to maintain momentum from initial gains. The Eurozone’s July S&P manufacturing PMI was revised down to 51.9, and German retail sales fell by 1.1% month-over-month, the steepest decline in 13 months. There is an 88% chance of a 25 basis point ECB rate hike in its next meeting on September 10.
The yen appreciated by 0.35%, reaching a 2.75-month high against the dollar after coordinated warnings from the US and Japan about further interventions to support the yen. Japan’s July S&P manufacturing PMI was adjusted down to 54.5. Market expectations indicate a 50% chance of a 25 basis point rate hike by the BOJ on September 18. Gold prices fell by 0.4% due to reduced safe-haven demand amid a stock rally, while silver prices increased by 0.12% following the positive US manufacturing data.
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