Central-Bank Week Opens With Dollar Up, Stocks Down

Trading opens this week with the US dollar gaining ground on all major currencies. Futures on US equity indexes point lower, dragged down by technology and AI-linked stocks. Crude oil trades sharply higher amid increasing threats to Saudi Arabia from the Iran-backed Houthis, while US Treasury yields show minimal movement.

Central-bank activity is dominated by the Federal Reserve this week. The Fed delivers its rate decision on Wednesday, with the Bank of England and Bank of Japan following on Thursday.

Dollar opens the week on a stronger footing.

The US currency posts its biggest advances versus the New Zealand dollar, the Japanese yen and the Australian dollar. Moves against the majors are as follows:

• NZD: US dollar strengthens 0.69%
• JPY: US dollar strengthens 0.63%
• AUD: US dollar strengthens 0.52%
• EUR: US dollar strengthens 0.45%
• GBP: US dollar strengthens 0.21%
• CAD: US dollar strengthens 0.13%
• CHF: US dollar strengthens 0.11%

Safe-haven demand, higher crude costs, and the anticipated Fed rate increase are supporting the dollar.

The following are currency pair ranges relative to their 21-day average true range:

• EURUSD: trading range of 63 pips vs 46-pip average true range. At about 137% of its normal range, it has already exceeded typical bounds.
• GBPUSD: range of 55 pips, matching its 55-pip average. It has completed a normal full-day range.
• USDJPY: range of 137 pips vs 121-pip average. At about 113% of its normal range, it has already exceeded its typical range.
• USDCHF: range of 39 pips vs 53-pip average. It has done about 74% of its average range, leaving room for more if dollar buying persists.
• USDCAD: range of 37 pips vs 62-pip average. It has completed about 60% of its average range, the most remaining room among majors.
• AUDUSD: range of 42 pips vs 43-pip average. It has almost completed its normal range.
• NZDUSD: range of 52 pips vs 47-pip average. At about 111% of its normal range, it has already exceeded it.

USDCAD has the most remaining room, having used up only about 60% of its usual range. USDCHF, at roughly 74%, also has capacity for further moves.

In contrast, EURUSD, USDJPY and NZDUSD have already reached or surpassed their average ranges. GBPUSD and AUDUSD are also near 100% of their typical ranges. While those pairs could still extend, they lack the range-based potential that USDCAD and USDCHF have.

The average true range does not cap moves. Pairs can push past their normal ranges, particularly amid geopolitical news and central-bank anticipation. Still, traders need to be aware when a move is already stretched and handle their risk appropriately.

AI worries are dragging down US stock futures.

As of 8:00 AM ET, futures indicate a steep decline at the open, led by the tech-heavy Nasdaq.

• Dow: down 133.29 points
• S&P 500: down 37.23 points
• Nasdaq: down 423 points

Tech and chip stocks are falling after leading AI figures urged a slowdown in advanced AI model development due to safety worries.

Anthropic's Dario Amodei urged more caution, and OpenAI's Sam Altman and Elon Musk also voiced unease over the pace of AI progress.

Investors fear that greater oversight may bring stricter rules, slower development, and a chill in the massive AI investment wave that has buoyed tech stocks.

Nvidia trades lower in premarket, while Intel, AMD, Marvell, and other chipmakers are also under heavy pressure.

The AI headlines hit the Nasdaq hardest, but rising oil, inflation worries, and the anticipated Fed hike are also pressuring the broader stock market.

Oil rises as Saudi Arabia faces Houthi challenges.

WTI crude oil trades at $102.65, a gain of $2.60, or 2.60%.

The Houthis, backed by Iran, have extended their hold in Yemen, seizing Mocha port and Perim Island, a strategic location near the Bab al-Mandeb Strait.

This heightens the danger to a vital shipping and energy route.

Saudi Arabia also faces a closure of its East-West oil pipeline after a drone attack, said to have come from Iraq. The pipeline carries oil from eastern fields to Red Sea export terminals, avoiding the Strait of Hormuz.

The pipeline's importance has grown due to Hormuz disruptions.

Saudi Arabia is reluctant to re-enter a lengthy Yemen war, but its choices are narrowing. Riyadh can strike back, risking a wider regional war, or stay restrained as the Houthis gain territory and threaten Saudi assets.

For oil markets, the worry is that two key energy chokepoints, Hormuz and Bab al-Mandeb, could be simultaneously disrupted.

The timeline for reopening the East-West pipeline is unclear. A prolonged closure would hit Saudi exports and global oil supply more heavily.

Rising crude creates an additional headache for central banks. A fresh energy shock could push headline inflation up, raise transport and production costs, and eventually feed into broader consumer prices.

Fed, BOE, BOJ meetings dominate the calendar.

The Fed unveils its interest-rate decision on Wednesday.

Markets anticipate a 25-basis-point rate hike, taking the target to 4.00% from 3.75%. New economic projections, the FOMC statement, and the chair's press conference will also be released.

The press briefing and projections are key because traders will look for signs of whether this hike is a one-off or the start of a broader tightening cycle.

The BOE reports on Thursday, with expectations of holding the bank rate at 3.75%. Attention will be on the vote split and forward guidance.

The Bank of Japan also meets Thursday. Markets will watch for a possible 0.25% rate adjustment and clues on the future direction of Japanese rates.

ECB policymakers stay focused on price pressures.

These remarks come after the ECB raised rates last week.

ECB Governing Council member Yannis Stournaras argued that timely moves could lower the risk of needing much bigger rate hikes later, which would cause greater economic hurt.

ECB Executive Board member Isabel Schnabel said the recent rise in oil prices is "quite worrying."

These remarks underscore the challenge for central banks globally. Officials seek to avoid over-tightening that would needlessly slow growth, but higher energy costs raise the odds that inflation stays high and rates remain elevated longer.

Treasury yields are nearly flat.

US Treasury yields show little change as markets await the Fed decision:

• 2-year yield: 4.6408%, down about 0.3 basis points
• 5-year yield: 4.7968%, up about 0.6 basis points
• 10-year yield: 4.9731%, down about 0.2 basis points
• 30-year yield: 5.3522%, down about 0.2 basis points

The minimal action indicates the bond market is in a holding pattern ahead of Wednesday's Fed decision, projections, and guidance.

Other asset moves

• WTI crude: $102.65, up 2.60%
• Gold: $4,296.24, down 1.18%
• Silver: $63.04, down 2.21%
• Copper: $6.4250, down 1.88%
• Bitcoin: $77,845, up 1.35%

Economic data on tap today

Canada's inflation figures are the highlight for the North American session:

• Canada CPI month-on-month expected at -0.1%, versus +0.5% prior.
• Canada median CPI year-on-year expected at 2.0%, unchanged from previous month.
• Canada trimmed CPI year-on-year expected at 1.9%, unchanged from previous month.

Later this week, UK employment and inflation figures will be released ahead of the central-bank decisions.

The week starts with multiple powerful forces at work: a probable Fed rate hike, a tech selloff driven by AI worries, higher oil, and rising Middle East tensions.

These themes should sustain high volatility. While fundamental news may spur moves, technical levels will show whether buyers or sellers are in control.