Key Takeaways
- 💵 The U.S. dollar fell to a three-week low due to weaker economic data and expectations of interest rate cuts.
- 📉 The euro gained against the dollar to a three-week high.
- 🏭 U.S. manufacturing sector is showing signs of decline with ISM and construction spending data dropping.
- 🇺🇸 Markets are questioning the U.S. exceptionalism theme following recent economic reports.
- 🏦 The Federal Reserve’s probability of a rate cut in September increased to around 59.1%.
- 🇪🇺 The ECB is expected to cut rates, with markets pricing in 57 bps of cuts.
- 🇬🇧 Sterling rose versus the dollar after U.S. manufacturing data, but weakened after Nigel Farage’s announcement.
- 🇲🇽 The Mexican peso weakened due to concerns about non-market-friendly policies following election results.
- 🇮🇳 The Indian rupee rose against the dollar due to exit polls indicating a third term for Prime Minister Modi.
- 📊 USD/CAD remains mostly flat despite rally in precious metals markets.
International Currency Markets React to Economic Data and Political Developments
In the past week, international currency markets have experienced significant movements in response to a variety of economic data releases and political developments across the globe.
The U.S. dollar saw a decline to a three-week low as weaker economic data and expectations of future interest rate cuts weighed on the currency. This decline was accompanied by a rise in the euro, reaching a three-week high against the dollar. The U.S. manufacturing sector showed signs of decline, with ISM and construction spending data dropping, leading to market doubts about the U.S. exceptionalism theme.
Market focus also turned to central banks, with the Federal Reserve’s probability of a rate cut in September increasing and the European Central Bank expected to cut rates. The British pound experienced some volatility, rising against the dollar initially but weakening after announcements by political figures. Additionally, the Mexican peso faced pressure due to concerns about post-election policies, while the Indian rupee strengthened on exit polls indicating a potential third term for Prime Minister Modi.
Amidst these movements, the USD/CAD pair remained relatively flat despite a rally in precious metals markets, showcasing the complex interplay of economic indicators and geopolitical events on currency valuations.