The greenback faced pressure on Monday as the deadline for lawmakers to resolve the country’s borrowing limit approached, while global shares inched up slightly in anticipation of this week’s U.S. inflation data release.
Despite the MSCI All-World index rising 0.2 percent, investors have lowered their predictions for when and how much the Federal Reserve will implement its rate cut following last Friday’s robust U.S. payrolls report. The consumer price data, expected to show core inflation slowed moderately, is due to be released on Wednesday.
Money markets indicate that investors expect U.S. rates to have peaked, and the dollar is near its lowest in a year against a basket of major currencies. The dollar index, which tracks the currency against six major peers, fell 0.2 percent to 101.11, with last month’s 100.78 being the lowest in a year.
The sterling was up a fraction for the day and hovered at an 11-month high of $1.2652. It has been gaining ground against the euro at 87.36 pence — the euro’s softest point against the pound this year. It is, however, under particular scrutiny ahead of the Bank of England’s expected rate increase on Thursday.
The euro, meanwhile, has rallied nearly 16 percent against the greenback from September lows, with the European Central Bank expected to keep interest rates higher than the U.S. Federal Reserve. Although the Fed raised rates by 25 basis points last week, it sounded more cautious about future hikes.
The Australian dollar hit a three-week high, rising 0.5 percent to $0.6784. The dollar was 0.1 percent stronger against the yen at 135.0, although it dipped 0.46 percent on the Swiss franc, another traditional safe haven, to 0.8874.
Futures for U.S. interest rates suggest a one-third chance of a rate cut by July, although stronger-than-expected U.S. jobs data released on Friday suggests this might be premature.
With financial markets continuing to price in interest rate cuts for the U.S. and further interest rate hikes from the ECB, currency strategists are expecting the euro to remain strong against the dollar.
Global stock market updates
European and Asian stock markets posted gains on Monday despite persistent concerns about high global interest rates aimed at curbing inflation. The rally in U.S. regional banks helped offset worries over rising interest rates.
The Hang Seng index in Hong Kong rose 0.8 percent, while China’s CSI 300 index of Shanghai and Shenzhen-listed shares climbed 1 percent. However, Japan’s Topix fell 0.3 percent, bucking the trend in the region.
Energy and financial stocks led the way in the pan-European Stoxx 600 index, which rose 0.2 percent, while Germany’s Dax gained 0.1 percent.
U.S. banking stocks rebounded at the end of last week, lifting the KBW Regional Banking index by 4.7 percent, while the S&P 500 gained 1.9 percent and the tech-focused Nasdaq Composite climbed 2.3 percent. Nevertheless, analysts remain cautious about the markets’ upward trajectory without positive economic data from China or signs that the U.S. Federal Reserve may begin cutting interest rates.
Futures tracking the S&P 500 were trading 0.1 percent higher, while those following the Nasdaq were down 0.1 percent. Brent crude rose 1.4 percent to $76.39 a barrel, and West Texas Intermediate gained 1.6 percent to $72.48.
Meanwhile, government bond markets saw a slight decline in yields as bond prices increased following Friday’s sell-off, with the yield on 10-year U.S. Treasury down 0.01 percentage points at 3.424 percent in Asian trading on Monday.