Dollar rises on China uncertainties, ECB Lagarde's speech in focus

Along with growing concerns about weaker demand in China due to an upsurge in COVID-19 cases, political uncertainty in the Chinese market was also triggered by rare protests that took place over the government's strict restrictions on COVID in Shanghai, which brought about selling pressure across the board.

European stock markets are expected to open lower on Monday after a series of protests over the weekend in China against tightening mobility restrictions to combat the country's ongoing COVID outbreak. This is expected to weigh on economic activity in the country. China has the second-largest economy in the world, making it a major export market for European companies as well. In addition to restricting mobility, the protests are likely to have a detrimental impact on the affected economy as well.

US dollar benefits from risk aversion

US dollar futures and the US dollar index both rose 0.4% each to over 106 as demand for safe-haven assets rose, reversing recent losses for the greenback amid an increase in safe-haven buying. It led to global commodity markets tumbling on Monday amid fears of worsening demand in China.

Despite this, dollar gains are likely to be limited by growing expectations that the Federal Reserve will hike interest rates by a smaller margin in the months to come. Such a scenario has prompted substantial gains in Asian currencies over the past two weeks. However, given that inflation is still well above the Fed's target, markets remain unclear about when US interest rates will peak.

Oil tumbled on Monday

As protests in top importer China in response to strict COVID-19 restrictions fueled concerns about demand, oil futures fell over $2 a barrel on Monday with West Texas Intermediate hitting an 11-month low. Earlier in the day, Brent crude oil plunged $2.16 per barrel, or 2.6%, to trade below the $81.50 per barrel mark during the European session after hitting its lowest level since January 11 at $80.90

The recent drops in oil prices are consistent with a major trend that has already emerged since June. This is due to mounting concerns about a decline in oil demand in the wake of recession fears. The two benchmarks, which hit 10-month lows last week, have now been headed lower for three consecutive weeks. The price of Brent oil ended last week down 4.6% while the price of WTI oil fell 4.7%.

As a result of this weak start to the week, the trading range of WTI oil is estimated to decline to $70-75, making the market volatile as it depends on the outcome of the OPEC+ meeting and the price cap on Russian oil, which is expected to continue for the rest of the week.

Events of the day

Taking a look ahead to what is due to be released on Monday, there is no major data that is expected to move the markets, either from the Eurozone or the US. Thus, traders will be guided by the speeches scheduled to be given by ECB President Christine Lagarde and influential members of the FOMC, such as James Bullard of the St. Louis Fed and John Williams of the New York Fed. Combined with the bond yields in the US and the broader risk sentiment, this will drive USD demand as well as provide some impetus to the major currencies against the dollar during the day. The focus, however, will remain on the flash CPI print for the Eurozone on Wednesday, as well as the closely watched US jobs data - known as NFP - that will be published on Friday. Key macroeconomic releases will provide investors with information regarding the major's near-term trajectory.