Dollar Slips as Inflation Data Loom; Oil Hits Six-Week High

Market Wrap-up: Dollar Falls as Investors Await Key US Inflation Data 

Markets continued to trade within a relatively narrow range following Friday’s stronger-than-expected Non-Farm Payrolls report, which led investors to reassess expectations for the Federal Reserve’s policy path. Meanwhile, US markets were closed for the Labor Day holiday at the start of the week.

The DXY fell to a more than two-week low near 98.80 as traders awaited this week’s US inflation data. The Producer Price Index and Consumer Price Index will be released on Thursday and Friday, respectively. Both reports will be closely assessed for further indications of the Federal Reserve’s policy outlook.

As the US dollar weakened, the Japanese yen strengthened to its highest level since 18 February, reaching around 153.00. 

A government report showed that Japan’s real wages rose 2.4% year on year in July, marking the strongest increase since May 2021. Meanwhile, GDP data from the Cabinet Office showed that the Japanese economy expanded at an annualised rate of 1.4% between April and June.

The stronger Japanese data reinforced expectations of further monetary policy tightening by the Bank of Japan. Markets are currently pricing in a 25-basis-point interest rate increase at the BoJ’s meeting on 17 and 18 September.

In precious metals, gold edged 0.5% lower to $4,405.47 per ounce. Silver declined 0.2% to $66.03 per ounce, while platinum fell 0.8% to $1,805.53 and palladium slipped 0.7% to $1,396.08.

Oil prices reached six-week highs during the latest session amid developments involving the US and Iran over the weekend, with markets continuing to monitor the situation in the Middle East.

Brent crude rose 1.5% to $97.73 per barrel and briefly reached $97.93, its highest level since 23 July. WTI gained 1.8% to $93.10 per barrel, marking its highest level since late July.

Tight US crude inventories, the world's largest oil producer and consumer, also remained in focus.

Looking ahead, markets will monitor the first key data releases of the week, including the ADP Weekly Employment Change and US Consumer Inflation Expectations.

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DXY:

Key takeaway:

• The US dollar started the week on a softer note as markets await US CPI and PPI data for further guidance on the Fed’s policy path and the dollar’s direction.
• Friday’s stronger-than-expected NFP report appears to have been largely absorbed by the market.

Technical Outlook:

• Daily Bias: Bearish
• Support: 98.55 
• Resistance: 99.39   

Gold:

Key takeaway:

• Gold moved lower as expectations of higher US interest rates continued to weigh on sentiment, despite a weaker US dollar.
• Trading remained relatively subdued amid lower liquidity during the US bank holiday.

Technical Outlook:

• Daily Bias: Cautiously Bearish
• Support: 4,365
• Resistance: 4,450

Oil:

Key takeaway:

• Oil prices remained supported by developments in the Middle East and continued regional uncertainty.
• Tight US inventories and supply disruptions also remained in focus as oil prices moved higher.

Technical Outlook:

• Daily Bias: Bullish
• Support: 88.74 
• Resistance: 94.00 

USD/JPY:

Key takeaway:

• Stronger Japanese economic data reinforced expectations that the BoJ could raise interest rates next week.
• Markets are pricing in a further 25-basis-point increase, which would raise the policy rate from 1.00% to 1.25%

Technical Outlook:

• Daily Bias: Bearish
• Support: 152.00
• Resistance: 154.86  

Calendar Watch:

• ADP Weekly Employment Change.
• US Consumer Inflation Expectations.

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