The U.S. dollar was constrained on Monday by the possibility of rising European interest costs and Japanese intervention, while Asian stock markets rose on optimism that a crucial report on U.S. inflation may indicate some cooling.
Trading was weak due to holidays in South Korea and China, and investors were uncertain of the potential effects of Ukraine’s unexpected victory over Russian forces.
After mildly recovering from a two-year low struck last week, MSCI’s largest index of Asia-Pacific equities outside of Japan (.MIAPJ0000PUS) increased by 0.5%. After increasing 2% last week, Japan’s Nikkei (.N225) rose an additional 1.1%.
Ahead of retail and industrial statistics anticipated later this week, which may show some rebound in August after a poor July, Chinese blue chips (.CSI300) firmed 1.3%.
S&P 500 futures nudged up 0.1% on Wall Street as investors attempted to build on Friday’s rebound, while Nasdaq futures rose 0.2%. FTSE futures rose 0.3%, while EUROSTOXX 50 futures rose 0.7%.
As dropping gasoline prices are expected to drive lower the headline index by 0.1%, as per a poll, bulls are betting that Tuesday’s estimate on U.S. consumer pricing will indicate an inflation peak.
Though some analysts believe there is a risk of a softer report, the core is expected to increase by 0.3%.
Economists at Westpac said that given that the economy shrank through the first half and that household discretionary expenditure capacity is under a lot of pressure, they could be in for a little negative surprise.
They predict +0.2% for core & -0.2% for the headlines as a result. But even if it is, it shouldn’t be assumed that the volatility would go away in October and beyond.
A bad result would reignite rumours that the Federal Reserve will raise rates by only 50 basis points this month, but given how vehemently hawkish policymakers have indeed been lately, it would likely have to be quite weak to have any serious impact.
Right now, the market predicts an 88% chance that the Fed will increase rates by 75-basis points.
According to Harris, this will put greater tension on interest rates, weaken risky assets, and boost the already-strong dollar.
They contend that these patterns won’t reverse until the markets have priced in the full force of central bank rate increases, which has not yet happened.
After a month of steady increases, the dollar is currently experiencing some profit-taking from a market that is highly long the currency.
The dollar has appreciated against the yen so quickly that the Japanese government is criticising the depreciation of the yen louder and louder. This has sparked talk of intervention and placed weight on the Bank of Japan to scale down its yield curve control strategy.
A senior administration official stated on Sunday that Japan’s government must take action as needed to stop the yen’s excessive drops after it hit its lowest level versus the dollar in 24 years.
This was sufficient to keep the dollar stable at 142.74 yen and below its week-ago high of 144.99.
The dollar index was at 108.820 after rising as great as 110.790 the previous week.
The euro moved away from its most recent low of $0.9865 and edged up 0.5% to $1.0086.
It was aided in part by a report that officials at the European Central Bank perceive a rising possibility that they may need to increase their benchmark interest rate to 2% or higher to combat record-high inflation despite an impending recession.