Financial markets were unpredictable on Monday, although most major countries celebrated Labor Day by keeping their local markets closed. The US dollar rallied against its rivals, extending Friday’s gains before benefiting from better-than-expected US data.
Month-end flows and a position correction ahead of several high-level events this week propelled the dollar higher on Friday. The rally continued into the start of the week but returned during the European hours with minor volume-limiting movement. It then resumed its advance after the release of US data.
In the United States (US), the ISM manufacturing Purchasing Managers’ Index (PMI) improved more than expected to 47.1 from 46.3 in April. Additionally, construction spending increased by 0.3% monthly in March, better than the 0.1% decrease expected by market participants. The last gloomy S&P Global Manufacturing PMI estimate for the same month has been revised from 50.4 to 50.2.
The rising US Treasury Yields also support the US dollar. 10-year Treasury is now yielding 360%, up 15 basis points (bps), while 2-year Treasuries offer 4.13%, up 7 basis points on Monday.
Meanwhile, central banks are in the spotlight. The Bank of Japan informed its decision on Friday and, as widely expected, left interest rates unchanged during new Governor Kazuo Ueda’s first monetary policy meeting. The central bank also left the 10-year Japanese Government Bonds to range stable at 50 basis points, i.e., around 0%.
On Tuesday, the Reserve Bank of Australia (RBA) will declare its decision. The RBA is expected to hold interest rates hold and leave the policy rate at 3.50%. On Wednesday, the US Federal Reserve (FED) is published, and on Thursday, the European Central Bank.
Meanwhile, Wall Street exploded with the news that JPMorgan had bought most of First Republic Bank’s assets and bailed out the ailing institution with the blessing of the US regulator, the Federal Deposit Insurance Corporation.
Other Forex Market Analysis
XAU/USD traded briefly above $2,000 but lost more than $20 before the close, opening a space for a bearish extension.
EUR/USD has stabilized around 1.0960, keeping the pressure at the bottom of its recent range and risking further decline. GBP/USD is trading below 1.2500, but the risk of another leg drop is limited.
The Japanese Yen is the bad performer as USD/JPY jumped to 137.50.