The People’s Bank of China hijacked headlines Tuesday morning after unexpectedly cutting its key policy rate the biggest since 2020 to help the struggling economy. However, Asian markets had mixed reactions as sentiment was dampened by a barrage of disappointing Chinese economic data released after the interest rate decision.
European futures are signaling a positive open ahead of Germany’s August ZEW survey. On the currency side, reports of wages rising at a record pace in the second quarter of 2023 pushed the yuan down to its weakest level since November, while the British pound strengthened.
Turning to commodities, gold has oscillated above the $1,900 support level while oil prices remain vulnerable as China’s growth concerns hit the demand outlook.
Focus on USD and retail sales
Heading into the second half of 2023, a weaker dollar could become a major theme if the Fed signals that the rate hike cycle is truly over.
Despite a modest rise in U.S. inflation in July after a 12-month streak of decline, the core numbers are encouraging, suggesting that the Fed’s aggressive rate hikes are beginning to tame the inflation beast. showing. If price pressures continue to ease and there are signs of weakness in US economic data, further rate hikes may be out of the question, especially given the Fed’s current data-dependent stance.
U.S. retail sales data, due later today, will be focused on and could add another piece to the puzzle that will determine whether the Fed will raise rates again in 2023. Wednesday’s Fed minutes could also provide important clues about the central bank’s next policy action. Traders are currently pricing in only an 11% chance of a 25 basis point hike at the FOMC meeting in September, but that chance will rise to 40% by November, according to Federal Funds Futures. . If data are weak or the minutes are dovish, the dollar is likely to fall. Any hawkish hints or signs of further rate hikes ahead could push the dollar higher.
On a technical note, the US Dollar Index is trading below the 200-day simple moving average on the daily chart. If the bulls are unable to overcome this resistance, the price can sink below 103.00. If the current upward momentum is maintained, the next major interest level could be at 104.00.
