Euro rose in European trade on Monday against a basket of major rivals, extending recovery for the second day off six-month lows against dollar.

The gains remain rather limited amid grim outlook for the euro's future following the recent European Central Bank's meeting and the hints of reaching neutral interest rates, which threatens to widen the interest rate gap between the US and Europe. 

EUR/USD rose 0.2% to 1.0677, with a session-low at 1.0658, after rising 0.2% on Friday, the first profit in three days, off six-month lows at 1.0632. 

Euro lost 0.4% last week, the ninth weekly loss in a row and the longest such streak of weekly losses in euro's history. 

ECB

Unexpectedly, the European Central Bank raised interest rates last week for the tenth meeting in a row, carrying on its battle against inflation.

The ECB raised interest rates by 25 basis points to 4.50%, the highest since 2001.

The ECB said at its policy press release that despite slowing inflation, it'll remain high for an extended duration.

The central bank asserted that upcoming decisions will rely heavily on data to decide the appropriate level and duration of high interest rates.

ECB President Christine Lagarde said that ECB members believes the current rates will help control inflation and bring it back to 2%.

The ECB will continue to rely on data to determine the duration of the currently high interest rates.

The ECB cut growth forecasts this year from 0.9% to 0.7%, but expects the euro zone economy to rebound in the second half of the year.

Interest Rate Gap

The current interest rate gap between the US and the euro zone currently stands at 100 basis points, the lowest since May 2022 and is expected to remain so until November, when the ECB is expected to maintain interest rates unchanged.

However there's a nearly 50% chance the Federal Reserve will raise interest rates by 25 basis points, in turn widening the gap with European policies. 

US stock indices declined on Friday following a spate of data and amid concerns about strikes in the US automotive sector.

Earlier US data showed import prices rose 0.5% in August after a 0.1% rise in July, the largest such increase since May 2022, as fuel prices rose while import prices rose 1.3% in August. 

US industrial production rose 0.4% in August m/m, slowing down from the previous reading but still beating estimates.

Thousands of workers in the automotive sectors started a strike in three major factories owned by Ford, General Motors, and Stellantis after negotiations failed between unions and the companies to rework labor contracts. 

On trading, Dow Jones fell 0.6%, or 198 points as of 16:13 GMT to 34,708, while S&P 500 fell 0.9%, or 41 points to 4463, as NASDAQ slumped 1.3%, or 180 points to 13,746. 

Palladium prices barely rose on Friday as the dollar lost ground against most major rivals, following fresh Chinese stimulus measures after the People's Bank of China cut reserve requirements for local banks to boost the economy. 

Such a step did help to improve the prices of many metals and commodities, with traders now awaiting crucial Chinese industrial production and retail sales data later.

Continuous concerns about supply shortages, and expectations that the Federal Reserve will maintain interest rates unchanged helped boost oil prices in particular this week. 

Higher interest rates raise costs of borrowing for consumers and corporations and weigh on growth and metals demand.

Otherwise, the dollar index fell 0.1% as of 15:51 GMT to 105.2, with a session-high at 105.4, and a low at 105.08. 

Palladium futures due in December rose 0.3% to $1251.5 an ounce as of 15:52 GMT.

Palladium is used extensively in the automotive and electronics industries, with particular use in reducing exhaust fumes. 

Oil prices fell in European trade for the first session in six days off ten-week highs on active profit-taking.

Oil prices are still heading for the third weekly profit in a row amid expectations of excessive market shortages in the fourth quarter of the year and amid OPEC optimism for global demand. 

Prices are also boosted by strong Chinese economic data, which renewed hopes for improving fuel demand, in turn overshadowing concerns about US oversupply as inventory and crude production increase.

Global Prices 

US crude fell 1.5% to $89.27 a barrel, with the highest since November 2022 at $91.11 a barrel, while Brent declined 1.25% to $92.70 a barrel, with the highest since November 2022 at $94.58. 

US crude rose 2.1% on Thursday, while Brent added 2.0%, the fifth profit in a row amid expectations of excessive shortages in the final quarter of the year. 

Weekly Trades 

Oil prices are up 2.5% so far this week on track for the third weekly profit in a row. 

Shortages

The International Energy Agency said the decision by Saudi Arabia and Russia to cut crude output by 1.3 million bpd until the end of the year will cause shortages in the fourth quarter of the year.

Bank of America analysts believe such cuts will send Brent prices above $100 by the end of the year.

Conversely, OPEC maintained its optimistic outlook for demand growth worldwide this year and next year,while also expecting flexible global economic growth despite higher interest rates.

OPEC specifically expects global demand on crude to rise by 2.25 million bpd in 2024, and to rise by 2.44 million bpd this year.

Chinese Demand 

Recent strong Chinese data indicated the economy is likely recovering in the third quarter of the year and exiting the recent struggles.

China's industrial production rose 4.5% in August, beating estimates of 3.9%, while retail sales rose 4.6% in August, beating estimates of 3.0%, as unemployment fell to 5.2%.

In another stimulus step to boost the economy, the People's Bank of China decided to lower the required cash reserves held by banks by 25 basis points to nearly 7.4%.

US Stocks

The Energy Information Administration reported a buildup of 4 million barrels in US crude stocks last week, while analysts expected a 2.2 million barrels drop.

US production also surged by 100 thousand bpd to a total of 12.9 million bpd, the highest since March 2020.