Yen up on rate talk, eyes now on US inflation numbers

Good morning

Today marks the 23rd anniversary of the terror attacks in the US that, in my opinion, really changed both the economical and geopolitical environment across the world.  My thoughts are with anyone involved or affected by those horrific events.

We saw further USD strength yesterday helped in part by a bout of negative risk sentiment that sent equities lower and led to a flight to safety in the currencies.  GBPUSD traded down to 1.3050, EURUSD to 1.1015, not huge moves on the face of it but the lowest levels in those pairs since around mid-August and certainly below pre-nonfarm payroll levels.  By the London close we were off those lows by just a few points.

Overnight we had the long-awaited US Presidential debate between Trump and Harris.  I didn’t stay up to watch it, but have seen enough clips to know that neither candidate really crowned themselves in glory even though they would probably both claim to have done so.  I say again, 350 million people and this is the best they can come up with.  Worrying. 

USDJPY dropped overnight reaching as low as 140.70 as BoJ official Nakagawa offered some pretty hawkish comments, suggesting rates were currently extremely low and that they should rise if the economy and inflation move in line with the bank’s forecast.  These were the lowest levels we’ve seen in 2024 to date. 

The USD selling did have an impact across the board, with GBPUSD trading up to 1.3110 before the release of UK’s July GDP number.  That came in at a disappointing 0% (expected 0.2%) and with a poor industrial production number (-1% vs 0.2% expected) GBP rightly fell back, reaching 1.3080, while GBPEUR also shifted a few points lower from 1.2865 to 1.1850 or so.

In football, England managed a 2-0 win against Finland, Harry Kane scoring both which seemed fitting on the day of his 100th cap. It was another functional rather than outstanding team performance against a team ranked 37th in Europe but hey, a win is a win I guess.  Interim manager Carlsey is set to continue his role, with some already suggesting he should be given the job on a permanent basis.

Today we will enjoy the latest set of US inflation numbers.  Friday’s nonfarm payrolls failed to help the markets work out whether we will see a 25bps or 50bps cut from the Fed next week, perhaps this release will give a clearer idea of which way they may choose to go.  Real potential for a bit of volatility on this release.  Other than that the diary is clear today. 

I relented yesterday and put the heating on, just for an hour to take the chill out of the place, I’d tried taking my own ‘just put a jumper on’ advice but it just wasn’t enough.  A pretty poor show given we are not even half way through the month!  I stepped outside yesterday evening and it felt like a real winters night, dark, cold and wet.  The forecast suggests it could get a bit warmer into next week, I really hope so.

Have a great day

-  13.30 US CPI

-  02.00 AUS consumer inflation expectations

UK employment numbers give GBP a lift

Good morning

All pretty quiet in the currency world yesterday as the markets did their best to digest the data from last week while waiting for the next round of key numbers in the form of US inflation figures tomorrrow.  We saw a little USD strength through the day that carried on overnight, with GBPUD and EURUSD trading as low as 1.3060 and 1.1030, however this morning that USD strength has reversed and both pairs are a touch higher again, now 1.3105 and 1.1040 respectively. 

UK unemployment numbers this morning gave a bit of a boost to GBP, coming in a bit stronger than expected, the unemployment rate shifted lower to 4.1% while the increase in those claiming unemployment benefit rose by less than expected, with a downward revision to the previous months figure as well. The lower average wages should be a help to BoE when deciding whether or not to cut rates once again later this month.

Overnight we had some Aussie consumer confidence data which was pretty terrible, AUD has done quite well to ignore the release, indeed it had actually pushed a bit higher, but this morning we have seen GBP strength take GBPAUD up from 1.9605 to 1.9660, similarly GBPNZD has pushed up from 2.1245 to just shy of 2.1300.

It is a very light calendar today once again, BoCs Macklem will be speaking this afternoon but that’s about all there is on offer.  Early tomorrow morning we will have a UK GDP update and industrial production numbers, but the key will be US inflation tomorrow afternoon.  For those interested in US politics, Trump and Harris are holding a televised TV debate.  Both are quite capable of saying some pretty daft things, it is a pretty bad state of affairs when my main interest in the debate is to see which of them makes more of a fool of themselves.  One of these will be the next President of the US>

One American who I admire a great deal more than either Trump or Harris, and who would probably have done a better job as President, has sadly passed away.  James Earl Jones, most famous perhaps as the voice of Darth Vader, but also played roles in many magical films including Coming to America and Field of Dreams.  Some great memories.

We’ll be hoping England’s footballers leave us with some great memories this evening as they take on Finland in the Nations League at Wembley.  After a win against Ireland at the weekend, we’re hoping again for more flair and attacking football than we saw in the Euro’s.  The interim manager, Carsley, is likely to make some team changes for the match. 

Have a great day.  It’s a bit chilly, I got very close to putting the heating on yesterday but am holding out as long as I can.  Not sure I’ll last all the way through to October mind you. 

-  13.25 BoCs Macklem speaks

-  01.00 US presidential debate

-  07.00 UK GDP, industrial production

Nonfarms offer little help as to Fed rate decision, will US inflation?

Good morning

Fridays nonfarm headline number didn’t make great reading, coming in some 20k less than expected and downward revisions to the previous couple of months of some 86k.  However the unemployment rate held at 4.2% and average hourly earnings actually picked up to 3.8% which doesn’t really help the market, or indeed the Fed, decide whether a 25bps or 50bps cut this month is warranted.  General feeling is that a 25bps cut will be seen, but there are those looking for 50bps, focussing on Powell’s insistence that employment is now the main area of attention.

The other, perhaps more interesting question, is how much will the Fed cut this year.  Some are seeing 1.25% of cuts, implying one 25bps and two 50bps cuts.  Others are looking for some 50bps less, just 25bps cuts at each of the next three meetings this year, although do also see more cuts in early 2025.  We are now in the Fed blackout period so don’t expect any clues from Fed officials this week.  The latest US CPI readings out this week will be keenly watched to see whether inflation is under some control. 

In terms of price movement, USD weakened initially, GBPUSD bounced to 1.3240 and EURUSD to 1.1155 following the announcement, clearly looking at the headline and downward revisions rather than the details.  Since then we have seen USD push higher and this morning GBPUS is back at 1.3100 and EURUSD at 1.1060. 

I mentioned US CPI due  out this week.  We will also have the latest ECB rate meeting where they are expected to resume rate cuts after leaving them unchanged over the past couple of meetings.  Currently 4.25%, it is widely expected they will cut 25bps to 4%. 

In terms of domestic data, UK unemployment is out early tomorrow morning and industrial production Wednesday morning.  BoE rate meeting is next week but so far the focus is well and truly on the Fed. US CPI Wednesday and PPI Thursday are going to be watched closely.

Elsewhere, England managed to win on Saturday against Republic of Ireland, Englands two goals coming from players who could have played for Ireland had they chosen differently. We play again on Tuesday, this time against Finland.  Saturdays display was functional rather than outstanding, I expect more of the same this week.  Premier League action resumes next weekend, its Spurs v Arsenal on Sunday.  Can’t say I’m looking forward to that.

Englands cricket team will be hoping to avoid defeat by Sri Lanka today after a poor second innings left Sri Lanka needing just 219 runs to win.  They are currently 94/1, it will take something of a miracle for England to take the remaining nine wickets for less than 125 runs.   

I hope you dodged some of the rain at the weekend.  It may be drier this week but it’ll be chilly.  I know I’ve been away on a couple of holidays this year but it really doesn’t feel as though we had much of a summer here at home. 

-  01.30 AUS Westpac consumer confidence

-  04.00 China trade balance

-  07.00 UK unemployment

-  07.00 German HICP