09/09/2024
Written by: Ian Morley
Summary:
Yesterday morning’s gains in the JPY dissipated by the afternoon after the Bank of Japan’s interest rate hike. The USD ended the European session slightly lower due to a disappointing ADP payroll figure and slower wage growth. EU inflation figures exceeded expectations, with headline CPI at 2.6% year-on-year and core CPI at 2.9%. This led to market expectations firming up for only two rate cuts this year, providing support for the EUR.
During the Federal Reserve meeting last night, Chair Powell suggested that a September rate cut was possible, causing treasury yields to fall and weakening the USD. Market expectations now indicate potential consecutive 0.25% rate cuts before year-end based on his comments about several rate cuts. However, the initial USD weakness diminished overnight.
Speeches:
Market Insight:
Today is ‘Bank of England day,’ and the focus is on whether there will be an interest rate reduction from 5.25% to 5%. Market expectations have been increasing throughout the week, with speculation that five members will vote for a cut while four will prefer to maintain the current rate. With markets only pricing in a 63% probability of a rate cut, a cut announcement could lead to further GBP weakening. Conversely, if no rate cut occurs, expect the GBP to rise. This morning, the GBP is slightly lower as markets brace for a potential rate cut.
Final PMI manufacturing figures are due across the UK, eurozone, and US, alongside the US ISM number, which could add volatility to the USD. Despite the brief USD weakness last night, the day started with a stronger USD overall.