The Indian Rupee (INR) weakens on Monday, pressured by month-end US Dollar (USD) demand from importers and likely interventions by the Reserve Bank of India (RBI). However, strong inflows and lower crude oil prices might help limit the INR’s losses. 

Investors will focus on Fed Governor Michelle Bowman's speech on Monday, which might offer some insight and outlook on the US interest rate. Also, the Chicago Purchasing Managers' Index (PMI) and Dallas Fed Manufacturing Business Index will be released. On the Indian docket, the August Federal Fiscal Deficit is due later in the day

Daily Digest Market Movers: Indian Rupee softens as USD demand weighs heavily

The Indian rupee has remained largely stable against the USD in the current calendar year (CY 2024), depreciating by just 0.59% so far.

Chief Economic Advisor (CEA) V Anantha Nageswaran said on Friday that the Indian economy is estimated to grow at a rate of 6.5-7% in the current financial year on a steady-state basis.

The Personal Consumption Expenditures (PCE) Price Index rose by 2.2% year-over-year in August, compared to 2.5% in July, the US Bureau of Economic Analysis (BEA) showed on Friday. This figure was softer than the estimates of 2.3%. 

The core PCE, which excludes the more volatile food and energy prices, climbed 2.7% YoY in August, compared to the previous reading of 2.6%,  in line with the consensus of 2.7%. On a monthly basis, the core PCE Price Index increased by 0.1% in the same report period versus 0.2% prior. 

University of Michigan's Consumer Sentiment Index rose to 70.1 in September from 66.0 in August, better than the estimates of 69.3. 

Interest rate futures contracts have priced in a nearly 54% chance of a half-point cut in November, versus a 46% possibility of a quarter-point cut, according to the CME FedWatch Tool.

Technical Analysis: USD/INR tests rectangle pullback, success could see upward resumption

The Indian Rupee trades softer on the day. According to the daily chart, the constructive bias of the USD/INR pair persists as the price holds above the key 100-day Exponential Moving Average (EMA). However, further downside looks favorable as the RSI is located below the midline near 46.60. 

The support-turned-resistance level at 83.75 acts as an immediate resistance level for USD/INR. Further north, the next upside barrier emerges at the 84.00 psychological mark. 

The potential support level is located at the 100-period EMA at 83.62. Any follow-through selling below this level will see a drop to 83.00, representing the psychological level and the low of May 24. 

Source: FXSTREET

Gold price (XAU/USD) kicks off the new week on a softer note, albeit it remains confined in a multi-day-old range and within striking distance of the all-time peak touched last Thursday. Israel intensified the war at its border with Lebanon, raising the risk of a further escalation of geopolitical tensions in the Middle East. Apart from this, news that Japan's new Prime Minister Shigeru Ishiba is planning a general election for October 27, along with the US political uncertainty, should lend support to the safe-haven precious metal.

Furthermore, dovish Federal Reserve (Fed) expectations keep the US Dollar (USD) bulls on the defensive, near the lowest level since July 2023 touched on Friday, and might turn out to be another factor acting as a tailwind for the non-yielding Gold price. That said, the risk-on environment, bolstered by additional stimulus announced by China over the weekend, is seen exerting some pressure on the XAU/USD for the second straight day. Nevertheless, the fundamental backdrop supports prospects for the emergence of some dip-buying. 

Daily Digest Market Movers: Gold price is undermined by the risk-on mood, Fed rate cut bets and geopolitics could limit deeper losses

Israel expanded its confrontation with Iran's allies – Houthis in Yemen and Hezbollah in Lebanon – and launched aggressive aerial assaults on Sunday, fueling fears about an all-out war in the Middle East.

According to a statement by the Israeli Defence Forces dozens of aircraft, including fighter jets, power plants and a seaport at the Ras Issa and Hodeidah ports in Yemen were targeted in the airstrikes.

Israeli airstrikes across Lebanon killed the deputy head of the militant group Hezbollah's Central Council, Nabil Kaouk, making him the seventh leader slain in Israeli attacks in a little over a week. 

Investors now seem concerned that the fighting could spin out of control and draw in Iran and the United States, Israel's main ally, which, in turn, should act as a tailwind for the safe-haven Gold price. 

The current market pricing indicates a greater chance that the US Federal Reserve will again lower borrowing costs by 50 basis points for the second straight monetary policy meeting in November. 

Dovish Fed expectations fail to assist the US Dollar to register any meaningful recovery from its lowest level since July 2023 and should contribute to limiting losses for the non-yielding yellow metal. 

St. Louis Fed President Alberto Musalem said on Friday that the US central bank should revert to cutting interest rates gradually after a larger-than-usual half-point reduction in the September meeting.

The global risk sentiment gets an additional boost after the People's Bank of China announced on Sunday that it would tell banks to lower mortgage rates for existing home loans by October 31.

This comes on top of last week's slew of monetary, fiscal and liquidity support measures – China's biggest stimulus package since the pandemic – and remains supportive of the upbeat mood. 

China’s official Manufacturing PMI improved to 49.8 in September from 49.1, beating estimates of 49.5, while the NBS Non-Manufacturing PMI unexpectedly fell to 50.0 from August’s 50.3 figure.

China's Caixin Manufacturing PMI contracted to 49.3 in September, from 50.4 in the previous month, and the Caixin Services PMI dropped to 50.3 during the reported month from 51.6 in August.

Meanwhile, the upbeat mood is seen exerting some downward pressure on the safe-haven precious metal as traders now look to Fed Chair Jerome Powell's speech for some meaningful impetus.

Technical Outlook: Gold price could attract dip-buyers near an ascending trend-channel throwback

From a technical perspective, any subsequent fall is likely to find decent support near a short-term ascending trend-channel resistance breakpoint, around the $2,625 region. This is followed by the $2,600 mark, which if broken decisively could pave the way for some meaningful downside in the near term. Given that the Relative Strength Index (RSI) on the daily chart is still hovering near the overbought zone, the Gold price might then accelerate the slide towards the $2,560 intermediate support en route to the $2,535-2,530 region.

On the flip side, the $2,670-2,671 area now seems to act as an immediate hurdle ahead of the $2,685-2,686 zone, or the record high touched last Thursday. This is closely followed by the $2,700 round figure, which if conquered will be seen as a fresh trigger for bullish traders and set the stage for an extension of a multi-month-old uptrend.

Source: FXSTREET

Will the Fed opt for a back-to-back 50bps rate cut?

Although the dollar slipped after the Fed decided to cut interest rates by 50bps and to signal that another 50bps worth of reductions are on the cards for the remainder of the year, the currency traded in a consolidative manner last week even with market participants penciling around 75bps worth of cuts for November and December. A back-to-back double cut at the November gathering is currently holding a 50% chance according to Fed funds futures.

Ergo, with policymakers Christopher Waller and Neel Kashkari clearly favoring slower reductions going forward, the current market pricing suggests that there may be upside risks in case more officials share a similar view, or if incoming data corroborates so.

This week, investors will have the opportunity to hear from a plethora of Fed members, including Fed Chair Powell on Monday, but given that the dot plot is already a relatively clear guide of how the Fed is planning to move forward, incoming data may attract more attention, especially Friday’s nonfarm payrolls.

ISM PMIs and NFP report to attract special attention

But ahead of the payrolls, the ISM manufacturing and non-manufacturing PMIs for September, on Tuesday and Thursday respectively, may be well scrutinized for early signs of how the world’s largest economy finished the third quarter. If the numbers agree with Powell’s view after last week’s decision that the economy is in good shape, then the dollar could gain as investors reconsider whether another bold move is necessary.

However, for the dollar to hold onto its gains, Friday’s jobs report may need to reveal improvement as well. Currently, the forecasts are suggesting that the world’s largest economy added 145k jobs in September, slightly more than August’s 142k, with the unemployment rate holding steady at 4.2%. Average hourly earnings are seen slowing somewhat, to 0.3% m/m from 0.4%.

Overall, the forecasts are not pointing to a game-changing report, but any upside surprise coming on top of decent ISM prints and less-dovish-than-expected commentary by Fed policymakers could very well act as the icing on the cake of a bright week for the US dollar. Wall Street could also cheer potentially strong data, even if it translates into slower rate cuts ahead, as more evidence that the US economy is not heading into recession is nothing but good news.

Eurozone inflation in focus amid split ECB

In the Eurozone, the spotlight is likely to fall on the preliminary CPI data for September, due out on Tuesday. Even though Lagarde and her colleagues did not offer explicit signals regarding an October reduction, the disappointing PMIs encouraged market participants to increase bets of such an action. Specifically, the probability of a 25bps reduction at the October 17 meeting is currently at around 75%.

Having said that though, a Reuters report citing several sources noted yesterday that the October decision is seen as wide open. The report mentioned that the doves will fight for a rate cut following the weak PMIs, but they will likely face resistance from the hawks, who will argue for a pause. Some sources are talking about a compromise solution in which rates are kept on hold but reduced in December if data doesn’t improve.

Yet, the market’s base case scenario is rate cuts in both October and December, and a set of CPI numbers pointing to further slowdown in Euro area inflation could solidify that view.

Euro/dollar could slip in such a case and extend its decline if the US data corroborates the notion that there is no need for the Fed to continue with aggressive rate reductions. That said, for a bearish reversal to start being considered, a decisive dip below the round figure of 1.1000 may be needed, as such a break may confirm the completion of a double top formation on the daily chart.

BoJ’s Summary of Opinions also on the agenda

In Japan, the BoJ releases the Summary of Opinions from the latest decision, where policymakers kept interest rates unchanged but revised up their assessment on consumption due to rising wages. Governor Ueda said that they will keep raising rates if the economy moves in line with their outlook and thus, investors may dig into the summary for clues and hints on how likely another rate hike is before the end of the year.

Japan’s employment data for August, due out during the Asian session Tuesday, and the Tankan survey on Thursday, may also help in shaping investors’ opinion.

United States: Consumer in the Spotlight

The personal income and spending data this week show that inflation remains in check, shed light on the staying power of the consumer and paint a more constructive backdrop for household finances moving forward. Real estate should be a beneficiary of lower interest rates as the Fed eases policy, yet housing activity remains slow.

This week: ISM Manufacturing (Tue.), ISM Services (Thu.), Employment (Fri.)

International: Eurozone Economy at Risk of Renewed Stumble

The Eurozone September manufacturing and services PMIs were disappointing, with output and orders both softening, although they also indicated an overall softening in price pressures. We expect Eurozone expansion to continue, but now expect a slower pace of recovery than previously. Elsewhere, last week was a busy week for international central banks. China, Sweden, Switzerland, Hungary, the Czech Republic and Mexico all lowered interest rates, while Australia held monetary policy steady.

Credit Market Insights: Is the Tide Turning for Commercial Real Estate?

When the Fed cut the policy rate by 50 bps, it marked what should be the beginning of the end of the worst CRE downturn since the global financial crisis. Although there are no shortage of obstacles ahead for CRE, the gap between the amount of maturing debt in need of refinancing and the available capital should be reduced with lower rates, thus limiting the extent to which stress mounts further.

Topic of last Week: Reasons Not to Panic About Looming Port Strikes

Thousands of dockworkers are set to strike at East and Gulf coast U.S. ports this week if the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX) cannot come to an agreement regarding wage negotiations. While work stoppages at these ports cannot be ruled out, and a prolonged worker stoppage could disrupt supply chains, our sense is that worries about major supply disruption are overstated.

The GBP/USD pair holds positive ground near 1.3385 during the early Asian session on Monday. Expectations of further interest rate cuts by the Federal Reserve (Fed) and the less dovish stance of the Bank of England's (BoE) less dovish rate cut bets provide some support to the major pair. Fed Governor Michelle Bowman is scheduled to speak later on Monday. 

US inflation has cooled to a pace nearer to the Fed's 2% target. The headline Personal Consumption Expenditures (PCE) Price Index rose by 2.2% year-over-year in August, compared to 2.5% in July, the US Bureau of Economic Analysis (BEA) showed on Friday. This figure was softer than the estimations of 2.3%. The core PCE climbed 2.7% in August, in line with the consensus.

On a monthly basis, the PCE Price Index increased by 0.1% in the same report period. Interest rate futures contracts have priced in a nearly 54% chance of a half-point cut in November, versus a 46% possibility of a quarter-point cut, according to the CME FedWatch Tool. 

The upside of the Pound Sterling (GBP) is supported by the anticipation that the BoE rate-cutting cycle is likely to be slower than in the United States (US). This, in turn, acts as a tailwind for GBP/USD. Amid the lack of top-tier UK economic data released from the UK docket this week, the GBP will be influenced by market expectations for the BoE monetary policy action for the remainder of the year.

Source: FXSTREET