- Last week, currency futures rallied after data revealed soft US consumer inflation.
- Trump met Russian President Putin on Friday to discuss an end to the war in Ukraine.
- Traders are anticipating a meeting between Trump and Zelensky.
Currency futures eased on Monday as the dollar gained ahead of a meeting between Trump and Ukraine’s Zelensky. The high-stake meeting has increased demand for the safe-haven dollar and hurt risk appetite. Meanwhile, market participants are looking forward to key events this week, including the Jackson Hole symposium.
Last week, the dollar collapsed while currency futures rallied after data revealed soft consumer inflation. US inflation increased by 2.7% in July, missing forecasts for a 2.8% increase. As a result, Fed rate cut expectations soared. The fact that the report followed downbeat jobs numbers had some traders pricing a 50-bps rate cut in September.
Additionally, top government officials started calling for a massive rate cut, blaming the Fed for delaying while the economy needed low borrowing costs. However, this changed after data later in the week revealed a sharp increase in producer prices.
US sales (Source: Census Bureau)
Moreover, retail sales showed solid consumer spending. The stronger data dashed confidence about a massive cut. At the same time, it led to a decline in rate cut bets for a 25-bps move.
Nevertheless, economists in a Reuters poll predicted a rate cut in September and another before the year ends. As a result, rate cut bets remained relatively elevated.
However, focus shifted from monetary policy to geopolitics. Trump met Russian President Putin on Friday to discuss an end to the war in Ukraine. According to Trump, Putin is more willing to talk about a peace deal rather than a ceasefire deal. This is a step in the right direction. However, for this to work, Ukraine has to agree to Russia’s terms. Otherwise, the war will continue.
Traders preferred the dollar on Monday as they anticipated a meeting between Trump and Zelensky. If the meeting goes well, risk appetite will increase as traders hope for an end to the war. However, at the moment, there is a lot of uncertainty about the outcome.
At the same time, traders are awaiting the Jackson Hole symposium where Powell might hint at policy. His tone will likely shape the outlook for rate cuts. However, some analysts believe he is still not ready to give a clear signal on rate cuts. Meanwhile, traders will also watch inflation readings from the UK and Canada for clues about BoE and BoC rate cuts.
