- Increasing doubts about an ECB interest rate cut in October
- Mounting odds of a 0.5% Fed rate cut
Euro rose in European trade on Wednesday against a basket of major rivals, extending gains for the second session against the US dollar and scaling a four-week high, and about to trespass the psychological barrier of $1.12 and scale multi-month highs on interest rate prospects.
Bullish remark from an ECB official earlier this week cast doubts on the possibility of an ECB interest rate cut in October.
On the other hand, a series of weak US data and bearish remarks from Federal Reserve officials boosted the odds of a 0.5% rate cut in November.
The Price
The EUR/USD pair rose 0.2% today to $1.1199, the highest since August 26, with a session-low at $1.1175.
The pair closed Tuesday up 0.6%, marking the first profit in three days, and the largest since August 23 following weak US data.
European Remarks
European Central Bank member and Governor of the Bank of Estonia Madis Müller said on Tuesday the decision to cut interest rates in October isn’t ruled out, but it’s still too early to have a clear picture about the future by the next meeting.
He said it’ll be easier to make a decision on interest rates at the December meeting.
European Rates
Markets expect the ECB to cut interest rates by less than 50 basis points by the end of 2024.
US Rates
Earlier US data showed housing prices fell in July, while consumer confidence slipped unexpectedly in September.
Chicago Fed President Austin Goolsbey said there will be “a lot of rate cuts” in the next 12 months, while Minneapolis Fed President Neil Kashkari said the actual path forward for interest rates will depend on data.
Following the remarks, and according to the Fedwatch tool, the odds of a 0.5% Fed interest rate cut in November rose to 60%, while the odds of a 0.25% slipped to 40%.
Interest Rate Gap
The US-eurozone interest rate gap is standing at 135 basis points in favor of the US, and will likely remain unchanged in October.
- Better than expected Japanese servies prices data
- Increasing odds of a third Japanese interest rate hike
The yen rose in Asian trade on Wednesday against a basket of major rivals, moving in a positive zone against the dollar for the third straight session following bullish remarks from Bank of Japan Governor Kazuo Ueda.
The remarks, combined with strong Japanese services prices data, boosted the odds of a third BOJ rate hike this year.
The Price
The USD/JPY pair fell 0.25% today to 142.89 yen per dollar, with a session-high at 143.49.
The yen closed Tuesday up 0.25% against the dollar after US treasury yields dropped following weak data.
Ueda
Bank of Japan Governor Kazuo Ueda said that real interest rates in the country remain too low, which continue to stimulate the economy and increase inflation.
Ueda added that it’ll be suitable to raise interest rates again if inflation moved as expected towards 2%.
He noted that recent services prices data shows the impact of higher wages on inflation.
Services Prices
Earlier Tokyo data showed services prices rose 2.7% in August, above estimates of 2.6%, and the same as July.
Gold prices rose on Tuesday to the sixth record high this month as the dollar lost ground against most major rivals.
The gains came as the Federal Reserve officially commenced a new policy easing cycle with a surprising 0.5% interest rate cut last week to 5%.
The markets are expecting another similar Fed rate cut by the end of the year.
Lower interest rates boost liquidity in the markets and reduce borrowing costs for corporations, in turn supporting investments.
Otherwise, the dollar index fell 0.4% as of 19:05 GMT to 100.4, with a session-high at 101.05, and a low at 100.4.
Gold spot prices rose 1.1% as of 19:06 GMT to $2682.2 an ounce.
US stock indices rose on Tuesday mildly and marked yet another record high.
The gains came as the Federal Reserve officially commenced a new policy easing cycle with a surprising 0.5% interest rate cut last week to 5%.
The markets are expecting another similar Fed rate cut by the end of the year.
Lower interest rates boost liquidity in the markets and reduce borrowing costs for corporations, in turn supporting investments.
On trading, Dow Jones rose 0.2% as of 15:28 GMT to 42226, while S&P 500 rose 0.1%, or 5721, as NASDAQ added 0.1% to 17,997.
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