26/07/2024
Written by: Ian Morley
Summary:
Yesterday mirrored Monday’s trading activity with a slight weakness in the USD, albeit within recent ranges. Speeches from the Federal Reserve (Fed) and the Bank of England (BoE) did not significantly impact the markets.
Speeches:
· EUR: European Central Bank (ECB) Muller
· GBP: Bank of England (BoE) Mann
· USD: Federal Reserve (Fed) Bostic, Collins, and Williams
Market Insight:
Today’s focus revolves around the second estimates of Q4 GDP and core Personal Consumption Expenditures (PCE) from the US. A substantial deviation from initial readings is necessary to provoke significant movement in the USD, considering the lagging nature of these indicators. The hope is that speeches from Fed officials Bostic, Collins, and Williams will inject some activity into the subdued market. It’s worth noting, as detailed in the Analysis section, that additional support for the USD from projected rate cuts seems unlikely, given that market sentiment aligns with the Fed’s outlook. Consequently, general risk appetite is likely to dictate FX movements.
Analysis:
Reflecting on the beginning of the year, the market was pricing in a significant 150 basis points (bps) worth of rate cuts by the Fed, in contrast to the Fed’s projection of only 75 bps. However, the market’s expectations have since aligned with the Fed’s stance, bolstering the USD. Nevertheless, since February 13th, when US Consumer Price Index (CPI) numbers saw an uptick, the relationship between market rate cut expectations and the USD has diverged.