- The US dollar holds ground above eight-month lows
- Markets await Jerome Powell’s remarks in Jackson Hall
The US dollar rose in European trade on Thursday for the first time in five days, holding above eight-month lows amid attempts to recover before important US data.
The data covers unemployment claims, industrial and services indicators, which will provide important clues on the future of US rate cuts this year.
The Price
The dollar index rose 0.2% to 101.30, with a session-low at 101.09.
The index closed down 0.25% on Wednesday, the fourth loss in a row, plumbing eight-month lows at 100.92.
The Fed
According to the Federal Reserve’s July meeting minutes, the majority of members expect an interest rate cut in September if data continued on the current trajectory.
US Rates
According to the Fedwatch tool, the odds of a 0.5% Fed interest rate cut in September stood at 35%, and the odds of a 0.25% cut stood at 65%.
Data
Later today, US unemployment claims data will be released, expected to show a slight increase to 232 thousand.
The US manufacturing PMI for August is expected to be barely down to 49.5 in August from 49.6 in July, while the services PMI is expected down to 54.00 from 55.0.
Powell
Now market focus is shifting to Federal Reserve Chair Jerome Powell’s speech at Jackson Hall on Friday, expected to provide important clues about the future of US inflation and interest rates.
- Sterling climbs above $1.3
- Markets await important data
- Odds of a BOE rate cut in September recede
The pound rose in European trade on Thursday against a basket of major rivals, maintaining gains for the sixth straight session against the dollar, and about to touch 13-month highs, especially after trespassing the psychological barrier of $1.3 recently following a batch of data that showcased the flexibility of the UK economy.
The data dragged the odds of a Bank of England rate cut in September down, in turn boosting the pound.
Now traders await important UK manufacturing and services data later today.
The Price
The GBP/USD pair rose by over 0.1% to $1.3108, with a session-low at $1.3081.
The pair closed up 0.45% on Wednesday, the fifth profit in a row, marking a 13-month high at $1.3120 as the dollar sustained losses against most major rivals.
Economic Flexibility
Official UK data last week showed total GDP grew by 0.6% in the second quarter, matching expectations.
The data shows that GDP growth remains at the upper limit of the pre-Covid 19 era.
Capital Economics’ analysts note that the data might give BOE officials some assurances that even as growth picks up, inflation continues to taper off.
UK retail sales also rose as expected in July, confirming the resilience and strength of the UK economy in the third quarter.
UK Rates
Following the data, the odds of a Bank of England interest rate cut in September stood at 40%, and at 50% for a November rate cut.
US Rates
According to the Fedwatch tool, the odds of a 0.5% interest rate cut by the Federal Reserve in September stand at 35%, with the odds of a smaller 0.25% cut standing at 65%.
Rate Gap
The current UK-US interest rate gap stands at 50 basis points in favor of the US, and will likely shrink to 25 basis points in September.
- Markets await remarks by Bank of Japan Governor
- US treasury yields dip after Fed’s minutes
The yen rose in Asian trade against a basket of major rivals, about to hit two-week highs against the dollar amid sideways trading, with investors shunning big positions until Kazuo Ueda’s testimony ahead of the National Diet.
On the other hand, US treasury yields continued their decline following the Federal Reserve’s latest meeting minutes, which bolstered the case for starting the policy easing cycle in September.
The Price
The USD/JPY fell 0.3% today to 144.85, with a session-high at 145.64.
The yen closed flat on Wednesday against the dollar, after marking two-week highs at 144.45.
Kazuo Ueda’s testimony
Bank of Japan Governor Ueda will testify ahead of Parliament later on Friday to discuss the unexpected decision to raise interest rates last month, and the sudden turn to normalizing policies.
US Yields
US 10-year treasury yields dipped 0.1% on Thursday, extending gains for the fifth straight session and approaching two-week lows at 3.763%, hurting the dollar’s standing.
The decline came after the release of the Federal Reserve’s meeting minutes, which showed that members are leaning strongly towards a rate cut in September, with some even willing to cut rates in July.
According to the Fedwatch tool, the odds of a 0.5% Fed interest rate cut in September stood at 35%, and the odds of a 0.25% cut stood at 65%.
The Federal Reserve released the minutes of its July 30-31 meeting, at which it held interest rates unchanged below 5.5%, however it noted that recent progress in containing inflation, and the increase in unemployment, are enough reasons to take a decision of a 0.25% rate cut, potentially in September.
The minutes showed the members’ varying opinions between June and July, while adding just a phrase that says inflation has receded last year, but remains high somewhat.
They noted recent progress in battling inflation, while removing the word “modest’ in describing inflation control.
The Fed nonetheless dropped the word “very” from its “the Committee will remain very vigilant to inflation risks”, which indicates less concerns.
The minutes clearly show the Fed is now focused on stabilizing inflation, with full employment, instead of just inflation.
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