- ECB sees October rate cut as unlikely
- Strong odds of a 0.5% Fed rate cut this month
The euro rose in European trade on Monday to two-week highs against the dollar, resuming gains after a short hiatus on Friday, with a positive outlook on the hopes of reducing the eurozone-US interest rate gap.
The European Central Bank mostly ruled out another rate cut in October, and conversely, the Federal Reserve is increasingly likely to cut interest rates by 50 basis next week.
The Price
The EUR/USD pair rose 0.4% today to $1.1119, the highest since September 6, with a session-low at $1.1074.
The pair closed Friday down 0.05%, hovering near four-week lows at $1.1002.
The pair lost 0.1% last week, the second weekly loss in three weeks on profit-taking off 13-month highs at $1.12.
The ECB
After the ECB’s decision to cut interest rates last week, Reuters reported from sources that the ECB is ruling out another rate cut in October.
Reuters’ sources indicate the ECB policymakers don’t see a need for an October rate cut, unless a serious economic slowdown occurred.
European Rates
Investors now expect about 36 basis points of rate cuts by the ECB throughout the rest of 2024, which means more than a single rate cut before the year end.
US Rates
Interesting reports from the Wall Street Journal and Financial Times indicate that this week’s Fed interest rate decision will be more complex than expected, following recent labor data.
According to the Fedwatch tool, the odds of a 0.5% Fed rate cut in September surged to 45%, while the odds of a smaller 0.25% cut fell to 55%.
- Strong odds of a third Japanese interest rate hike this year
- Increasing odds of a 0.5% Fed rate cut this month
The Japanese yen rose in Asian trade against the US dollar for the fifth straight session, piercing the 140 barrier for the first time since July 2023 on the outlook of a reduced US-Japan interest rate gap.
Several Bank of Japan officials expressed support for higher interest rates in the country, while conversely, the Federal Reserve is increasingly likely to cut interest rates in September by 0.5%.
The Price
The USD/JPY pair fell 0.5% to 139.95 yen per dollar, the lowest since July 2023, with a session-high at 140.90.
The yen rose 0.75% on Friday against the dollar, marking the fourth profit in a row as long-term US treasury yields declined.
The yen also rose over 1% last week against the dollar, marking the second weekly profit in a row.
Aggressive Remarks
Bank of Japan member Junco Nakagawa said on Wednesday that the BOJ will continue to raise interest rates if the economy and inflation move as expected.
He said real interest rates remain too low, and the central bank will adjust its policy easing if the economic outlook was achieved.
Another BOJ member, Naoki Tamura, said on Thursday, the central bank should raise interest rates until 1% at least by the second half of the next financial year, but it should be done gradually.
Japanese Rates
Traders still see little chance of a Japanese rate hike in October, with most bets pointing to December as the likely date for the third BOJ rate hike this year.
US Rates
Interesting reports from the Wall Street Journal and Financial Times indicated that this week’s Fed interest rate decision will be more complex than expected, following recent labor data.
According to the Fedwatch tool, the odds of a 0.5% Fed rate cut in September surged to 45%, while the odds of a smaller 0.25% cut fell to 55%.
Rate Gap
Investors have sold the yen mercilessly for months due to the massive interest rate gap between Japan and the US.
The rate gap created profitable opportunities, with traders borrowing cheap yen to invest in dollar assets with higher yields, the so-called Carry Trade.
However, after the BOJ and the Fed’s latest decisions in July, the rate gap between Japan and the US shrank to 525 basis points, the smallest such gap since July 2023.
And now investors expect the gap will shrink to 500 basis points by September as the Fed prepares a new rate cut, and might even shrink to 475 basis points if the Fed went ahead with a 0.5% rate cut.
Wheat prices rose on Friday after news that Egypt will buy a large amount to secure its future needs, a day after a Ukrainian government statement explaining a ship carrying grains to Egypt was hit by Russian missiles.
Otherwise, three sources told Reuters the Egyptian government bought Russian wheat in a special deal this week outside the normal tender process.
Two sources said Egypt bought 430 thousand tonnes of Russian wheat, to be shipped in October.
Egyptian officials refused to comment but told Reuters they receive offers and assess them on a daily basis.
The sources said the shipments were bought for $233 a tonne from a mediator who bought the grains directly from Russian for $231 a tonne.
Egypt, the world’s largest wheat importer, is trying to benefit from the lower global prices to accumulate and secure more grains, used in subsidized bread for tens of million of Egyptians.
Reuters reported last month that Egyptian President Abd El-Fattah El-Sisy personally ordered the biggest grain tender ever made for the country, hoping to secure half the country’s needs in one go, but they barely filled 7% of the target due to higher prices.
Egypt is suffering from steep inflation, and was bailed out by the IMF more than once in recent years.
Corn
Corn futures due in December rose 1.9% at the close to $4.13 bushel.
Soybeans
Soybean futures due in November fell 0.4% today to $10.06 a bushel.
Wheat
Wheat futures due in December rose 2.9% to $5.94 a bushel.
Most cryptocurrencies rose on Friday as risk appetite rebounded amid speculation the Federal Reserve will cut rates by a faster than expected pace.
The Michigan University's consumer confidence index rose 1.6% m/m in September to 69 points, beating estimates of 68.3.
Earlier data showed producer prices rose 1.7% in August, below July’s 2.1% reading, but core prices accelerated to 3.3%.
Other data showed US consumer prices rose 2.5% y/y in August, the lowest rate since February 2021, and below estimates of 2.6%.
Core prices rose 3.2% y/y last month, and 0.3% m/m, up from 0.2% in July.
According to the Fedwatch tool, the odds of a 0.5% Fed rate cut in September rose from 28% to 49%, while the odds of a 0.25% Fed rate cut fell to 51%.
Markets eagerly await the Fed’s next week policy meeting, scheduled on September 17 and 18, and is expected to signal the start of the new policy easing cycle.
Ethereum
On trading, ethereum rose 2.7% on Coinmarketcap as of 20:57 GMT to $2416, marking a total weekly profit of 8.9%.
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