USD lower again as talk of a 50bps cut by the Fed gains traction

Good morning

A lot of talk over the weekend of a possible 50bps rate cut from the Fed this week has helped push USD lower against the majors.  GBPUSD hit 1.3170, EURUSD 1.1115 but most attention is on USDJPY which has broken below 140.00 for the first time since July 2023, reaching a low of 139.75 so far.  A 25bps cut still seems most likely but the fact that there are still decent arguments for a 50bps cut suggests this will be a close call.  It’ll likely be a dovish meeting anyway, even if we see a 25bps cut we’d not be surprised if Powell offers a dovish message. 

Bank of Canada’s Macklem has also raised the possibility of rates cuts larger than their usual 25bps, particularly if growth seems to be struggling.  I strongly suspect the size of the Feds rate cut this week will have a bearing on the BoC’s decision.  They have cut by 25bps at their last three meetings, the next meeting is not until 23rd October.

Other than the Fed rate announcement this Wednesday and our own BoE rate meeting Thursday, we have the BoJ rate announcement as well.  We’re not looking for any change this time but there has been plenty of talk recently about the need for higher rates.  South Africa will also be announcing rates on Thursday, as will Turkey. 

In addition to the rate meetings, we have a pretty full calendar with CAD CPI and US retail sales tomorrow, UK and EU inflation Wednesday, NZD GDP and Aussie unemployment Wednesday night/Thursday morning and Japan inflation, UK and CAD retail sales on Friday.  That’s enough to keep us going I think.

I’m pleased to say that the weather over the weekend was much better than I’d hoped, I even sat outside for a bit on Saturday after mowing the lawn, the warmth of the sun was very welcome.  I know not everyone in Europe was quite as lucky, as devastating floods hit central and Eastern Europe including Poland, Czech Republic and Romania. 

A family event yesterday meant I missed the Spurs Arsenal match, no bad thing given it ended with a disappointing 1-0 defeat although even the Arsenal fans I know said a draw would probably have been a fair result.  Still, Spurs now have just four points from four matches which isn’t exactly the start I was hoping for. 

I know this actually came out last week, but in case you didn’t see it there was something of mystery in the world last year that was only solved recently.  A series of large, mysterious seismic shocks were recorded every ninety seconds for nine consecutive days, the reason for which remained unknown.  Scientists have since discovered that a mountain collapsed in a fjord in Greenland, creating a tsunami some 200 metres high.  With nowhere to go, the wave went back and forth inside the fjord for over a week.  Amazing.

Meanwhile, over the pond, Trump seems to have survived another assassination attempt as he played golf, with secret service agents firing shots at a man hiding in bushes with a machine gun.  The man fled but was later captured by police.  Harris remains just ahead of Trump in the betting for the November election.

That’s all for now, back to the grindstone. 

-  09.10 ECBs de Guindos speaks

-  13.00 ECBs Lane speaks

-  13.30 US NY empire state manufacturing index

USD lower as softer US PPI raises prospect of a 50bps cut from Fed next week

 Good morning

Softer US PPI numbers yesterday, including downward revisions to the previous month’s data, helped to send the USD lower in afternoon trade, with GBPUSD trading up from 1.3040 to 1.3090, hardly a dramatic move but perhaps more significant as it moved the pair further away from the lows seen on Wednesday after the US CPI inflation numbers.  

However, after the PPI release, the US dollar came under renewed pressure overnight as the market considered, once again, the chances of a 50bps cut from the Fed next week.  The move took GBPUSD as high as 1.3150 and EURUSD to 1.1090.  With BoE looking unchanged for next week, ECB perhaps not set to cut in October, and Fed looking to possibly cut 50bps next week, the push higher in both GBPUSD and EURUSD does not come as such a surprise to many.  The weaker USD also sent USDJPY lower, reaching 140.65.  Will we see a break below 140.00 for the first time since July 2023 before the week is out?

ECB did indeed cut the deposit rate 25bps to 3.5% as had been widely expected.  The central bank also lowered growth forecasts slightly, with 2024 now seen at 0.8%, 2025 and 2026 at 1.3 and 1.5% respectively.  Lagarde gave little away in terms of forward rate guidance, preferring, as I’d anticipated, to decide rates on a meeting by meeting basis.  Market impact was limited, reflective of just how much the moves had been priced in, it was the softer US PPI that pushed EURUSD up to the 1.1045 area.  Mind you, the idea that ECB may not cut in October is doing the rounds which could offer some support to the single currency.

We saw very limited movement in GBPEUR, dipping from 1.1840 to 1.1830 initially before trading up to 1.1850, hardly worth writing about really but perhaps the limited nature of the move serves to highlight again how certain the market was of the ECB’s actions in advance.

Russia’s invasion of Ukraine looks like it could escalate as Western nations decide whether to allow their longer range weapons to be used inside Russian territory.  At present they can only be used to attack Russian positions inside Ukraine.  The decision could be something of a game changer for the war.  Putin seems to understand this, warning that if NATO weapons are used against Russia, he would regard NATO as being at war with Russia.  I don’t like where this is heading.

There were some pretty spectacular images from Elon Musk’s SpaceX as Jared Isaacman became the first non-professional astronaut to walk in space.  He did fund the program so it’s only reasonable he got the main part.  One of the benefits of being a billionaire I guess!  The space craft, Resilience, travelled some 870 miles from earth, the furthest any human has been since the Apollo missions, when they managed some 250,000 miles. 

One of the biggest rivalries in football takes place a few days from now.  Yes, Man City will take on the Premier League in court charged with over one hundred cases of financial irregularities.  There can be little doubt there is some guilt, although I wouldn’t be surprised to see many charges dropped on technicalities. 

Oh and there’s the small matter of Spurs vs Arsenal this weekend.  Can’t say I’m overly confident but it’ll be an interesting test for both teams.  I’m looking for a few goals and a few bookings, I’d certainly settle for a draw.

Have a great weekend.  Stay warm, it got close to 0°c overnight, the heating has gone on this morning.  The forecast suggests it could warm up, I certainly hope so.  I’ve been told by British Gas that my bills are going up next month.  Oil prices and natural gas prices are at pretty low levels so I’m really not sure why my bills are going up. 

-  09.30 UK consumer inflation expectations

-  10.00 EU industrial production

-  15.00 US Michigan sentiment survey

US inflation points to a 25bps cut by the Fed next week. ECB to cut 25bps today

Good morning

US inflation yesterday offered little in the way or surprises, coming in pretty much as expected.  Headline CPI of 2.5% and a core reading of 3.2% has given the market more reason to look for a 25bps cut next week, and the US dollar pushed higher as a result.  GBPUSD hit a low of 1.3000 after the release, while EURUSD reached 1.1000.  US stocks pushed higher, the S&P 500 closed up 1% while the Nasdaq gained more than 2%.  GBPUSD and EURUSD have staged something of a recovery, now 1.3050 and 1.1015, which leaves GBPEUR at 1.1845.

We do have US PPI later today, this has been known to push USD around from time to time but it would take a very soft reading for the market to change its mind on the size of the cut we’ll get next week.

The highlight today will be the ECB rate meeting, where it is expected they will announce a 25bps cut to take the main rate to 4% and the deposit rate to 3.5%.  As always we’ll be looking for any guidance as to rate moves for the rest of the year, although I don’t think Lagarde will want to give too much away, preferring to continue the ‘meeting by meeting’ approach to decision making.  For now, 25bps cuts at the October and December meetings look probable.

There is much attention on the ECB rate meeting today and the Fed meeting next week.  Less has been said about the UK’s BoE rate meeting that also takes place next week.  We’ll have had the latest UK inflation numbers by the time the rate meeting takes place.  However, while US and Europe can look forward to lower rates, there is a strong feeling that UK will keep rates on hold this time around.

Aussie inflation expectations dropped a little overnight from 4.5% to 4.4%.  While any lower inflation is welcome, it remains well above RBA’s targets and as such I’m not looking for RBA rate cuts any time soon.  Indeed, RBAs Bullock confirmed back in August that they had considered a rate rise at the last meeting, making it clear it was far too early to talk of cuts.  AUDUSD has traded down from 0.6675 to 0.6625 after the US CPI release, but has since pushed back up to 0.6695.  GBPAUD had been close to 1.9700 yesterday morning is now 1.9510 having briefly dipped below 1.9500 this morning.  This was the second time this week we have failed at 1.9700.

It’s another chilly day with temperatures unlikely to break higher than 15°c, although we could be back up to the 20’s next week.  Let’s hope so.

Have a great day

-  13.15 ECB rate announcement

-  13.30 US PPI, initial jobless claims

-  13.45 ECB press conference

-  19.00 US monthly budget statement

-  23.30 NZ business PMI