As traders reduced their wagers on the Federal Reserve's rate hike trajectory over the previous week, the mood in the market continued to improve. With a rise of over 9 percent, the benchmark S&P 500 finished July with its best monthly performance since late 2020. US stocks gained 3.28 percent and 10.36 percent, respectively, on Friday, thanks to Apple and Amazon's impressive performances.
As traders shifted their focus to Treasuries, rates fell across the board, particularly at the short end of the curve, which is more USD-sensitive. High inflation and the likelihood of a recession indicated stagflation in the economy, but that didn't stop people from taking risks. The personal consumption expenditures price index (PCE) increased 4.8 percent year over year, while the second quarter's quarter-over-quarter growth of the US GDP decreased by 0.9 percent. The weaker US dollar was a boon for gold prices, as traders drove XAU to its highest level versus the USD since July 6.
To validate the bullishness witnessed in July, traders will look for follow-through as sentiment is probably in a dangerous place. Meanwhile, markets may continue to react as though "bad news is good news" when economic indicators are weak. This week, the US ISM manufacturing PMI indicator for July is expected to be released at 52, down from the previous reading of 53 in June. Several more S&P 500 businesses are expected to release earnings reports that surpass the week.
The Reserve Bank of Australia's rate decision will be crucial to the Australian Dollar's course even if it continues to increase this week. Many people think the RBA was slow to address inflation, forcing the central bank to play catch-up. If so, the AUD/USD would probably increase more. On Tuesday, analysts anticipate the RBA to raise interest rates by 50 basis points.
The second quarter employment data for New Zealand is scheduled to be released. According to a Bloomberg survey, the jobless rate is projected to fall to 3.1% in the second quarter. Over 0.5 percent was gained by NZD/USD last week. The Bank of England rate decision may potentially cause the British pound to change. Expect a 25-bps increase from the BoE. Last week, the GBP/USD exchange rate showed a notable increase of almost 1%. The week will come to a close with Canada's July employment report and the US non-farm payrolls report, with the NFP numbers being another potentially major event that might cause Fed rate hike predictions to shift.