Investors are navigating concerns about the US economy’s health while growing increasingly optimistic about early Federal Reserve policy easing. The dollar stabilized after weakening against most major and Asian currencies. Market participants are likely awaiting more US data, especially Friday’s critical jobs report, to gain clearer insights into the trajectory of the world’s largest economy and its central bank’s policy stance.
Recent soft US manufacturing data has revived expectations for the Fed to cut rates sooner, but it has also heightened worries about potential negative impacts on Asian economies. Swap contracts tied to upcoming Fed meetings continue to fully price in a quarter-point rate cut by December. The likelihood of a rate cut as soon as September has increased to around 50%, with November also seeing high odds for a move.
In the commodities market, oil prices tumbled as OPEC+ unveiled plans to restore some production. Gold held onto its largest advance in two weeks, buoyed by renewed optimism that the Federal Reserve will cut rates this year following soft US data.
Traders are keenly focused on whether inflation is cooling or remains entrenched in a “higher-for-longer” scenario, keeping interest rates elevated. This week’s jobs report is a significant test. Alongside Friday’s payrolls figures, traders will scrutinize a series of labor market readings this week. Additional cooling in job openings would reinforce the view that the labor market is no longer a significant threat to near-term inflation dynamics, potentially paving the way for the Fed’s anticipated rate cuts.