The dollar saw widespread strengthening following optimistic ISM data, leading to dwindling hopes for a Fed rate cut in June. Meanwhile, the yen remains subdued amid Japan’s continuous intervention warnings. Gold, defying the robust dollar, edges closer to its record high, while the stock market shows mixed reactions in anticipation of key data from Europe and the US.

Rate Cut Prospects Wane After Upbeat US Data

Monday’s positive ISM manufacturing PMI, which for the first time since September 2022 marked a shift into expansionary territory, has further dampened the anticipation for an imminent Fed rate cut. This follows the recent mild core PCE figures and cautious comments from Fed Chair Powell, hinting at sustained inflation concerns despite a general downtrend.

This latest data has led to a reassessment of the likelihood of a June rate cut, with the probability of a 25-basis-point reduction now seen at around 60%. Market sentiment has shifted, with expectations for rate cuts throughout 2024 now below the forecasts set by the latest FOMC projections.

Dollar’s Rally Impacts Euro and Pound

The surge in Treasury yields, sparked by the robust data, propelled the US dollar to four-and-a-half month highs against a range of currencies. This rise has particularly impacted the euro and pound, both of which have dropped to one-and-a-half month lows against the dollar amid contrasting rate cut expectations in their respective regions.

Yen Stabilizes Amid Intervention Speculation

The yen has remained relatively stable, closely watched by traders for potential Japanese intervention should it approach the 152 level against the dollar. Japan’s finance minister has reiterated a commitment to counteract excessive market volatility, leading to a slight strengthening of the yen.

Forex Markets Await Key Data and Fed Speeches

The forex market’s attention is now turning to upcoming CPI data from the Eurozone, the ISM services PMI, and the critical nonfarm payrolls report. Additionally, several Fed officials, including Williams, Daly, Mester, and Chair Powell, are scheduled to speak, potentially influencing market dynamics.

Wall Street Holds Steady Amid Rate Speculations

Despite a slight dip in the S&P 500 and adjustments in rate cut expectations, investor confidence on Wall Street remains relatively unshaken, indicating a wait-and-see approach towards inflation trends and their potential impact on equity markets.

Gold Targets New Heights Amid Diverse Influences

Surprisingly, gold has not only resisted a downturn but has also achieved new record highs, suggesting that factors like central bank acquisitions and investor demand may play a more significant role than the traditional inverse bond yield relationship.

Oil Futures Climb with OPEC Meeting Ahead

Oil prices have seen an uptick ahead of the forthcoming OPEC meeting, which is not expected to alter production quotas. However, rising tensions in the Middle East continue to exert upward pressure on oil prices.