US and EU manufacturing PMIs are expected to decline

As a result of data indicating a slowdown in Chinese factory activity on Monday, most Asian currencies fell Monday. However, the Japanese yen continued to hold its substantial gains against the dollar. FX traders are eagerly awaiting the release of the manufacturing PMIs for Europe and the United States. With the latest manufacturing PMI numbers for Spain, Italy, France, and Germany all expected to slip into contraction territory for July, it seems as though the economic data is likely to continue to deteriorate. This can have a detrimental effect on the EU's manufacturing PMI, causing it to fall below the 50 level.

Markets bet on a less hawkish Fed

As the markets continued to bet that the Federal Reserve has less tightening to do with the US economy at risk of recession, the dollar fell to a fresh six-week low against the yen in Monday morning trading. There is currently a 31% chance that the Fed will keep the pace of its 75-basis-point hikes at its next meeting on Sept. 21, while 69% believe that the Fed will reduce the pace to half a point at its next meeting.

Fedspeak and NFP

Several Fed officials will take the stage this week to discuss the economy and the economy's prospects, including Chicago Fed President Charles Evans, St. Louis Fed President James Bullard, and Cleveland Fed President Loretta Mester. As a result of recent economic data, their comments will be closely watched for any indications that they are preparing to hike rates less sharply in September. Another important report that can shed light on Federal Reserve's decision in its upcoming meeting is the monthly report on US job growth, which is scheduled to be released on Friday and will be the main economic focus this week.

The USD rally is getting out of steam

It is a cautious start to the week for the forex market as investors closely monitor how the US dollar trend will play out after a two-year rally. They also evaluate the possibility of the dollar's trend reversal and its impact on dollar-dominated assets, such as gold and bitcoin, if this is the case. The US dollar has risen about 11% against a basket of currencies this year, helped by a hawkish Federal Reserve and heightened geopolitical tensions that have boosted the greenback's safe-haven appeal.

However, as economic data is unlikely to get any better from here, the US dollar trend is about to reverse. The US Commodity Futures Trading Commission, which published data on Friday, reported a decline in speculators' net long bets on the US dollar in the latest week.