The Bullet Report: USD falls as traders scale back rate rises this year.

Dollar remains soft following the weaker than expected GDP numbers, released on Friday. As a result, FED rate hike expectations have diminished for September, and possibly for the remained of the year. However, 2 FE members tried to downplay the importance of this GDP number, mentioning that “it is still premature to rule out further monetary policy tightening this year”. Similar comments are expected in the speech by New York Fed Governor Dudley today. Hence, there will be plenty of focus as always on the non-farm payrolls report due out on Friday. This week we also have the Bank of England rate decision.

Currencies: The USD recovered a bit from the lows posted following Fridays weak GDP report, while the JPY gave back some its gains after BoJ released a much smaller than expected stimulus package. The weaker-than-expected GDP report followed a strong U.S. non-farm payrolls report for June, as well as improving inflation, retail sales and jobless claims data, that had prompted many investors to increase their dollar positions. The EURUSD edged up 0.1% to $1.1176 while sterling added 0.2% to $1.3251, with investors focused on the Bank of England’s decision on Thursday.

Stocks: Asian shares hit a 1-year high after Fridays GDP, reduced expectations that the US FED will raise interest rates this year. European shares are expected to open the day higher too, with DAX looking to open 0.7% higher and FTSE 0.4%. US stocks closed the week on a mixed footing as SP500 and Nasdaq closed in positive territory while the Dow closed -0.13%. Fed funds rate futures are pricing in only around 30% chance of a rate hike by December, compared to about 50% early last week.

Oil and Gold: Gold also hit a near three-week high of $1,355.1 per ounce on Friday and last traded at $1,347, down on the day as Asian stock markets reached higher. Oil, had its worst month in a year as Crude oil lost approximately 15% of its value, and hit 3 month lows.

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