The dollar has lost some of its strength after the recent US PPI data. The Federal Reserve now plans a smaller rate cut of 25 basis points instead of the previously expected 50. During the market session, the yen gained ground, with USD/JPY falling 0.5% to 146.95, thanks to strong Q2 GDP figures from Japan. The EUR/USD also went up by 0.3% to 1.1687. European stocks saw slight increases, while S&P 500 futures rose by 0.1%. Switzerland’s Q2 GDP showed minimal growth at 0.1%, down from 0.8% previously. Gold prices increased by 0.2%, reaching $3,342.17, and Bitcoin rose by 0.9% to $119,065.

USD Pairings Movements

USD pairings had mixed results. USD/CHF dropped 0.2% to 0.8055, GBP/USD increased by 0.2% to 1.3555, and AUD/USD rose 0.3% to 0.6510. Market activity was quiet due to a bank holiday in much of Europe, with focus shifting to the upcoming US retail sales data. Both US and European stock markets remained steady, continuing the positive trend from the previous week. The market has largely priced in a 25 basis point cut from the Fed in September, with the CME FedWatch tool showing an 88% probability. This explains the halt in the dollar’s recent rise. It could be strategic to sell out-of-the-money options that bet on a larger 50 basis point cut to gain premium. With Wall Street near all-time highs, the upcoming US retail sales report is a crucial point of risk. Economists expect a headline increase of about 0.6% for July, but any shortfall could unsettle investors. The VIX index is around 14, which means protective put options on the S&P 500 are relatively cheap as a safeguard against a market drop. Differences between central banks are creating chances in currency options. Japan reported a strong Q2 GDP of 2.5%, while Switzerland’s growth was only 0.1% for the quarter, and the Fed is easing. This makes put options on USD/JPY appealing for those betting on the yen gaining strength against a weak dollar.

China’s Monetary Policy and Commodity Outlook

China’s push for a looser monetary policy is a significant sign for commodity traders. This comes after last week’s disappointing industrial production numbers, indicating that authorities want to support growth. While this could boost assets like copper and oil in the medium term, concerns about a possible slowdown in US consumer spending are keeping WTI crude around $63. Looking ahead, the main focus is on transitioning from watching data to confirming an easing cycle. Back in late 2023, we saw markets climb for months in anticipation of the first rate cut, often ignoring mixed economic data. Therefore, any dip from strong economic news could be seen as a chance to position in rate-sensitive assets. Create your live VT Markets account and start trading now.

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