The U.S. Dollar is trading in mixed ranges as markets digest the Fed’s announcement and press conference from yesterday, which strongly suggested that an interest rate cut is coming in September.
Overview
At the time of writing, the probability of the Fed acting decisively and reducing borrowing costs at their September 18th meeting stood at 113.0%. Throughout the overnight sessions, there were some analyses that wondered if Fed Chairman Jerome Powell was perhaps cautiously “dovish” since he did not pre-commit to the move while also pointing at how officials want to see more consistent softening of inflation, especially after experiencing the surprising price growth of Q1.
Earlier, the release of Initial Jobless Claims revealed more seekers of unemployment benefits while showing that in Q2, the investment in labor did not match the expected expansion of 1.7%, coming at 0.9% instead. If data can indeed soften, the rate cut will happen, and it would be a major shock if it did not. Nevertheless, the Buck remains strong against major peers such as Euro and Sterling while currently seeing some recovery of EM/LATAM against it. The Yen‘s surge is halted while other pairs, such as the Canadian Dollar, are simply flat.
Tomorrow’s Non-Farm Payrolls will be crucial to keeping the odds of a Fed cut as high as they are. Economists will also pay close attention to details within the Employment Situation, Durable Goods Orders, and Factory Orders. Oil prices continue to climb as the situation in the Middle East heats up with Iran ordering retaliatory strikes to avenge the killing of Hamas’ main political leader.
What to Watch Today…
- U.S. Unemployment, Factory Orders on Friday
- Monex USA Online is always open.
EUR ⇓
The Euro is down after the Fed’s meeting as Powell left markets thinking that a cut may come in September, but two reductions may not occur for the year. Meanwhile, the European Central Bank will need to cope with economic pressures on Germany that indicate it would be wise to line up further interest rate cuts. Inflation, however, has played a major role in preventing the ECB from jumping into guarantees. Data gauging Manufacturing activity in July came in with a less pessimistic reading than anticipated. Expect talks of fiscal stimulus as the ECB also finds its ability to foment growth limited.
GBP ⇓
Sterling has dropped in value, but its losses have been limited after the Bank of England Andrew Bailey’s press conference following the BOE’s decision to cut interest rates by 25 basis points. While the cut was expected, Baily elaborated that this was no time to cut too fast and that officials were split on the slash. Four members were against it. With a new administration and hope to use a budget that promotes growth across the United Kingdom, Sterling may see bursts of appreciation if reducing rates also foster a faster pace of economic progress.
