The U.S. Dollar is trading in tight ranges to close out a week marked by slight weakening based on increased chances that the Fed will finally intervene and lower borrowing costs next week.
Overview
Indeed, the odds of a 25 basis-point reduction for September are guaranteed while there are growing probabilities for 50-bps as well as 75-bps by end of the year. The Federal Reserve will meet on Wednesday, then again October 29th, and on December 10th. There will be opportunity for a “dovish” tilt, which risk markets really desire, but there are still economists out there pointing at inflation being more worrisome. In European trading sessions, traders have discussed how the Fed could potentially cut too much and create more havoc for the financial environment that way.
If markets are overestimating the cuts to interest rates to come in the next year, disappointment could be reflected in dwindling equities. Next week’s tone regarding future action will be as crucial as the slash to be announced. Currently, volatility is not very high, so we shall see if any headlines move the needle. Later at 10AM, the University of Michigan Consumer Sentiment will give us a window into how regular folks feel about the state of the economy. The print is expected to display negativity in comparison to a pick-up in sentiment back in June that was the exception to a bad run since start of the year.
What to Watch This Week…
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The complete Economic Calendar can be found here.
EUR ⇑
The Euro is likely to close flat for the week after a bit of back-and-forth against the Buck that ultimately has not given much in terms of guidance. Political turmoil marked the week for Europeans who saw the introduction of a new Prime Minister in France while many are still calling for snap elections to replace Macron and other leadership. Major strikes and protests have been happening across nations as they also cope with the potential for more involvement in the armed conflict on the Eastern front. Inflation measures as well as Industrial Production will be out as the Fed becomes also key to European banks and investors. We will watch out for any breaking news about N.A.T.O. and any talks to escalate or alleviate the tensions.
MXN ⇑
The Mexican Peso has also not been moving wildly but could see dramatic shifts next week, potentially towards the positive as inflation makes it likely the central bank will take their foot off the gas. Banxico has slashed rates, having ample room to do so starting this year with 10.0% and now at 7.75%, but the idea that prices are ever growing may dissuade officials from cutting further. While a gauge of Aggregate Supply and Demand will be out next Friday, the week will be characterized by anticipation for the Fed policy on Wednesday. Keep in mind that Tuesday September 16th is a holiday in Mexico as the nation observes its Independence Day.
