- ECB members divided on rate cuts
- Increasing hopes of a reduced US-eurozone interest rate gap
Euro rose in European trade on Thursday against a basket of major rivals, moving in a positive zone for the second day against the dollar, as ECB members remain divided on the path ahead for eurozone interest rate cuts.
As the odds of a 0.5% Federal Reserve rate cut in September increase, the interest rate gap with the eurozone is expected to shrink further.
The Price
The EUR/USD pair rose 0.1% today to $1.1090, with a session-low at $1.1075.
The pair closed up 0.35% on Wednesday, moving away from two-week lows at $1.1026, following weak US data.
The ECB
According to Reuters sources, European Central Bank policymakers are increasingly divided about growth outlook, which bleeds into divisions about future eurozone rate cuts.
Some members worry about the softness of economic activities in the zone, while others are focusing on the persistent inflationary pressures.
European Rates
The European Central Bank cut rates by 25 basis points in June, and is almost confirmed to cut them once again by a similar amount in September as prices slowed down.
However, subsequent decisions will likely be more complex as the eurozone enters a delicate stage of its performance.
US Rates
Recent data showed US job opportunities fell to 3-⅕ year lows in July, showing the labor market has lost its momentum.
Following the data, the odds of a 0.5% Fed rate cut in September rose from 41% to 45% according to the Fedwatch tool, while the odds of a 0.25% rate cut stood at 55%.
Now investors await the all important US payrolls report on Friday to gather more clues on the path ahead for US monetary policies.
Rate Gap
The eurozone-US interest rate gap is standing at 125 basis points in favor of the US, and will likely remain unchanged in September, but could shrink surprisingly to 100 basis points if the Fed went ahead of a 0.5% rate cut this month.
- Bullish remarks from BOJ member
- Rising estimates of a third Japanese rate hike this year
- US yields decline boosts yen
Yen rose in Asian trade on Thursday against the dollar for the third profit in a row, hitting four-week highs after Japanese wages data paved the way for the third BOJ interest rate hike this year.
The yen was also boosted by a drop in US 10-year treasury yields after earlier US job opportunities data bolstered the case for a 0.5% Fed rate cut in September.
The Price
The USD/JPY pair fell 0.4% today to 143.18, the lowest since August 5, with a session-high at 143.90.
The yen rose 1.2% against the dollar on Wednesday, marking the second daily profit in a row, and the largest such profit since August 23 amid risk aversion and strong haven demand.
Japanese Wages
Earlier government data showed Japan’s total cash monthly income rose 3.6% y/y in July, beating estimates of a 3% rise.
Real wages, accounting for inflation, rose 0.4% y/y in July, after rising 1.1% in June.
Higher wages would likely push Bank of Japan’s policymakers to hike interest rates to control prices.
Bullish Remarks
BOJ member Hajimi Takata said the central bank should continue to raise interest rates if it could confirm that companies will continue to raise spending or wages.
Japanese Rates
Traders see a strong 90% chance of a Japanese rate hike by the Bank of Japan in December.
US Yields
US 10-year treasury yields traded near four-week lows at 3.753% on Thursday, pressuring the greenback.
Recent data showed US job opportunities fell to 3-⅕ year lows in July, showing the labor market has lost its momentum.
Wells Fargo’s economists said in a memo that job opportunities data indicate signs that the labor sector is continuing to slow down, with inflation likely to cool off as a result.
Following the data, the odds of a 0.5% Fed rate cut in September rose from 41% to 45% according to the Fedwatch tool, while the odds of a 0.25% rate cut stood at 55%.
Now investors await the all important US payrolls report on Friday to gather more clues on the path ahead for US monetary policies.
A lower yield gap between Japan and the US makes Japanese bonds more attractive, which boosts the yen.
Most cryptocurrencies lost ground on Wednesday amid a weak risk appetite following underwhelming US data.
Earlier data showed US job opportunities down to 7.7 million in July from June’s 7.9 million openings, while analysts expected 8.1 million.
The US ISM manufacturing PMI shrank for the fifth month in a row in August, clocking in at 47.2.
Later this week, US private sector employment data will be released, followed by the official payrolls report on Friday.
Otherwise, Atlanta Fed President Raphael Bostic said he’s ready to back an interest rate cut even with inflation about the Fed’s target, as waiting too long could lead to unnecessary disruptions to the labor market.
Ripple
On trading, Ripple fell 1.4% as of 21:07 GMT on Coinmarketcap to $0.5582.
The Canadian dollar rose against most major rivals today after a policy decision by the Bank of Canada today.
The BOC decided to cut interest rates by 25 basis points to 4.25%, the third such cut in a row.
In a statement, the central bank said it might issue more rate cuts this year if conditions continued to improve.
The rate cut was widely expected by analysts as inflation cooled while economic activities softened in June and July.
Mainline Canadian consumer prices rose 2.5% in July, marching steadily towards the bank’s 2% target.
On trading, the CAD/USD pair rose 0.3% as of 20:55 GMT to 0.74.
Aussie
The Australian dollar rose 0.2% against its US counterpart as of 20:55 GMT to 0.6721.
Official Australian data showed the GDP grew 0.2% in the second quarter as expected.
US Dollar
The dollar index fell 0.5% as of 20:34 GMT to 101.3, with a session-high at 101.7, and a low at 101.2
Earlier data showed job opportunities down to 7.7 million in July from June’s 7.9 million openings, while analysts expected 8.1 million.
The US ISM manufacturing PMI shrank for the fifth month in a row in August, clocking in at 47.2.
Later this week, US private sector employment data will be released, followed by the official payrolls report on Friday.
Otherwise, Atlanta Fed President Raphael Bostic said he’s ready to back an interest rate cut even with inflation about the Fed’s target, as waiting too long could lead to unnecessary disruptions to the labor market.
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