26/07/2024
Written by: Ian Morley
Summary:
Another day brings another weak report from the US, with the ADP payrolls coming in below expectations. Consequently, markets increased the likelihood of a rate cut in September from 75% to 80%, leading to a sell-off in the USD. However, the ISM service numbers exceeded expectations, coming in at 53.8, which helped the USD recover those losses. As a result, both GBPUSD and EURUSD are trading near recent highs but have not achieved new peaks.
The Bank of Canada decided to reduce interest rates to 4.75%, with Governor Tiff Macklem indicating the potential for further cuts if inflation continues to show signs of easing. Markets are now pricing in a 64% chance of another rate cut in July by the BoC, pushing GBPCAD to fresh 34-month highs.
Speeches:
Market Insight:
All eyes are on the ECB today, where a widely expected interest rate cut from 4% to 3.75% is anticipated. Much of this news is already priced in, so the key factor for the EUR will be the Bank’s guidance on the timing and magnitude of additional rate cuts. As noted earlier in the week, Q1 wage growth numbers were higher than in Q4 of 2023, and May’s CPI numbers also exceeded expectations. This raises the possibility of a hawkish cut by the ECB, which would be positive for the EUR, potentially lowering GBPEUR from recent highs and pushing EURUSD to fresh 3-month highs. Conversely, if the Bank is perceived as dovish, we would expect GBPEUR to reach new highs and EURUSD to fall.