Euro: Rate uncertainty and energy costs weigh – HSBC

HSBC's FX Viewpoint suggests the US Dollar may strengthen slightly in the short term due to several supportive factors. These include expectations of higher US interest rates compared to other economies, resilience in energy prices, and a reevaluation of US fiscal risks. The bank anticipates the Dollar to improve modestly as these cyclical, political and structural elements become more advantageous or less of an obstacle.

The primary concern is whether US rate expectations will stay robust relative to other nations. However, the resilience of energy prices and a reevaluation of fiscal risks could also provide a slight boost to the US Dollar. Currently, AUD/USD is holding near 0.7000 at the start of a new week, hovering close to its lowest point since August 4 as a result of bullish Dollar movements.

US bond yields are near multi-year highs due to inflation concerns from elevated oil prices and increased expectations of an October Federal Reserve rate increase. This, combined with the ongoing US-Iran standoff, continues to bolster the safe-haven Dollar and put downward pressure on the pair ahead of the Reserve Bank of Australia's policy meeting.

USD/JPY is experiencing buying interest and reversing part of its Friday decline, attributed to speculation that authorities may intervene to support the Japanese Yen. However, the Bank of Japan's cautious outlook limits the Yen's upside potential. Meanwhile, the US Dollar gains momentum as the US-Iran dispute strengthens crude oil prices, fueling inflation fears and reinforcing the belief of an impending Federal Reserve rate hike.

This further strengthens the Dollar, pushing it closer to the 158.00 level. Gold also experiences a significant drop at the beginning of a new week, falling below $4,200 for the first time in eight weeks. The rising expectations of a Federal Reserve rate hike, coupled with oil-related inflation risks, keep US bond yields elevated near multi-year highs, further supporting the Dollar and contributing to the decline in gold prices.

Cardano is showing signs of consolidation, trading below $0.260 after an 11% gain the previous week. Mixed derivatives and on-chain metrics indicate a cautious approach from traders. Despite the mixed outlook, the technical analysis suggests that bullish sentiment remains, but Cardano's near-term direction remains uncertain. Derivatives data reveals a mixed and cautious sentiment among Cardano traders.

The Dollar index has declined after testing resistance and may continue to dip over the next few sessions. Conversely, the Euro could rise from its current position. USDJPY has dipped below 158 and is headed towards 157/156, while EURJPY may trade within the 181-178 range in the near term. USDINR has a slight chance of testing 95.50, but it appears eventually bullish for an upward movement.

Both the Federal Reserve and the Bank of Japan recently followed a similar policy move by raising interest rates by 25 basis points, both are grappling with inflation concerns and signaling that future decisions will depend on incoming economic data.