Currency Markets

Dollar Index: The dollar index recovered from early North American lows but ended with a 0.38% loss in afternoon trading due to post-payrolls risk adjustments. A rise in U.S. Treasury yields off session lows provided a slight boost for the dollar. Despite this, recession fears remain prevalent, and short-term interest rates continue to price in more dovish Federal Reserve rate expectations. Nearly two 25 basis point cuts are priced in for September and almost 50 basis points for November, with a total of 117 basis points anticipated by the December 18 FOMC meeting.

EUR/USD: The euro rose 0.45% to 1.0961 in North American afternoon trading, briefly trading above 1.10 before upbeat ISM non-manufacturing data was released, which tempered recession fears. The European Central Bank's less dovish rate trajectory compared to the Fed may lead to further euro gains if supportive data continues.

USD/JPY: The dollar traded down 1.5% against the yen at 144.26 in North American afternoon trading, after hitting early lows of 141.84 and an overnight seven-month low of 141.68. Post-ISM data alleviated some recession fears, but USD/JPY remains down nearly 4% in August due to post-Bank of Japan hike weakness.

GBP/USD: The pound traded within a narrow range of 1.2795-1.2844 in North American trading, remaining between the falling 10-day moving average at 1.2839 and the daily cloud top at 1.2706. Despite lower Fed rate expectations diverging from Bank of England expectations, concerns about a stalling UK economy may prompt a softer BoE rate outlook.

Equities and Cryptocurrencies

Equities: Risk-off activity was prevalent in equities, with major U.S. indexes down nearly 2.5% on heightened global recession fears. Wall Street futures, however, were higher on Tuesday following U.S. services PMI data and reassuring comments from Federal Reserve officials.

Cryptocurrencies: Cryptocurrencies experienced significant declines, with Bitcoin falling 12.5% to $54.6k, though it had been down nearly 20% earlier in the day. Ethereum fell 8.8% to $2,456.

Market Drivers and Outlook

Recession Fears and Fed Expectations: Market drivers are dominated by recession fears, dovish Fed expectations, and mixed economic data. The outlook remains cautious, with a focus on upcoming economic data and central bank meetings. The currency summary indicates a mixed performance for the dollar, with gains against some currencies and losses against others, particularly the yen and the euro.

Currency Outlook: Potential further gains are expected for the euro, and continued weakness for the dollar against the yen. The pound's direction will depend on UK economic data and BoE policy signals. Investors are likely to remain cautious, closely watching economic indicators and central bank communications for further guidance on market direction.

Global Markets

Asian Markets: Asia will focus on the Reserve Bank of Australia's rate decision, with expectations of holding rates steady but possibly toning down its hawkish stance due to global events.

Global Stock Markets: Global stock markets experienced heavy losses, with the Nikkei's 13% plunge marking its biggest since the 1987 Black Monday selloff. The CBOE Volatility Index saw its largest ever intraday jump. By the end of the trading day, calm returned, capping off an extraordinary Monday in markets.

U.S. Markets: The Dow fell 2.6%, S&P dropped 3%, and Nasdaq declined 3.4%, but futures are up 1.2% this morning. U.S. yields were volatile, with the 2-year up 3 basis points to 3.9020%, the 10-year down 2 basis points to 3.7790%, and the 30-year down 4 basis points to 4.0710%.

Commodities

Oil and Copper: Oil prices fell due to demand concerns, with Brent down 0.66% and WTI down 0.79%. Both are higher in Asia due to geopolitical tensions. U.S. copper dropped 2.4% due to global growth concerns.

Gold: Gold fell 1.6% amid the broader market rout.

Currency Movements

U.S. Dollar: The U.S. dollar fell 0.5% but recovered from its lows.

Japanese Yen: The yen rose 1.68% but is down 1.2% this morning.

Swiss Franc and Euro: The Swiss franc increased 0.7%, and the euro rose 0.45%.

Chinese Yuan and Canadian Dollar: The Chinese yuan gained 0.5%, and the Canadian dollar increased 0.35%.

British Pound, Australian Dollar, and New Zealand Dollar: The British pound fell 0.22%, the Australian dollar dropped 0.22%, and the New Zealand dollar declined 0.39%.

Bitcoin: Bitcoin plunged 6.2%.

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