Dollar Strengthens Despite Initial Losses

On Monday, the US dollar gained strength against most major currencies, reversing its earlier losses against the euro. This rebound came as US Treasury yields continued their upward trajectory, a trend that has accelerated since the recent US presidential debate. Despite a weaker-than-expected ISM manufacturing report, which revealed a lower PMI and a significant drop in prices paid, the dollar's recovery was bolstered by improved new orders. Market reactions to President Joe Biden's debate performance and the potential policy changes under a Donald Trump administration have led to expectations of higher yields, although the political landscape remains uncertain.

Anticipation Builds for Key Economic Data

This week is set to be crucial for investors, with a series of significant economic data releases on the horizon. These include the JOLTS report on Tuesday, ADP employment data, jobless claims, and ISM services on Wednesday, and the highly anticipated non-farm payrolls report on Friday. The S&P 500 recorded modest gains, reflecting the market's anticipation of the payrolls report, which is expected to provide further insights into the Federal Reserve's rate-cut expectations. US Treasury yields saw substantial increases across the curve, with the 2s-10s curve steepening, indicating a shift in market sentiment towards less inverted yield spreads.

Currency Movements and Commodity Prices

In the currency market, EUR/USD experienced a slight increase, while USD/JPY rose as the yen weakened against the dollar. GBP/USD remained relatively stable with a minor decline, and AUD/USD fell. WTI crude oil prices surged, driven by hopes of increased demand during the summer driving season and concerns over potential supply deficits due to OPEC+ production cuts. Copper prices firmed, supported by stronger manufacturing data from China, although rising inventories capped gains. Gold prices edged higher, driven by short covering from investors awaiting the US jobs data for further clarity on Federal Reserve policy.

Outlook and Market Expectations

The outlook for the dollar remains focused on the upcoming economic data releases and their impact on market expectations for Federal Reserve policy adjustments. The dollar's strength could persist if US economic indicators continue to support higher yields, particularly amidst ongoing political uncertainty. However, any significant deviations in the data could prompt reassessments of rate-cut expectations and influence currency movements accordingly. Investors will be keenly watching the non-farm payrolls report on Friday for a clearer picture of the labor market's health and its implications for future monetary policy decisions.

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