Though the broad Dollar lost some ground in the early hours of yesterday’s trading, USD managed to stem its bleeding through the North American session and close out the day with minor, instead of major, losses.
Overview
Moving with a slight positive tinge this morning in quite a choppy trading, markets around the world look to be hedging out their risk in the event of either a 25 or 50 basis point interest rate cut from the Federal Resreve. The ‘will-they-won’t-they’ easing question traders have been asking for weeks regarding the Federal Reserve’s potential for a jumbo interest rate cut continues to drive USD pricing, and this morning, markets received the final major data point – retail sales – before what may be the most uncertain Fed decision since 2007, by some measures.
Retail sales this morning did remarkably little to move the needle before such a crucial decision point tomorrow afternoon, releasing a mixed bag of figures. While monthly retail sales did beat expectations and came in positive, showing 0.1% growth, core figures excluding gas and autos were a touch below expectations. Fed swaps, also, are oscillating between a 55 and 65% chance of a so-called supersize interest rate cut tomorrow, overall little changed from pricing at the end of last week and beginning at this one. Such a close call does effectively turn tomorrow’s decision into a coin flip, and nothing is certain except for quite a lot of volatility following the Fed’s 2 pm announcement. If anything, traders and analysts are only becoming more entrenched in the calls they have made on the Fed for the last few weeks, and this last bit of major data is proving itself quite unlikely to change anyone’s narrative. Rhetoric from Fed officials, too, has been quite split, making this meeting arguably the one least priced-in by markets in quite some time.
What to Watch Today…
- FOMC Interest Rate Decision, Wednesday 2 PM
- Bank of England Interest Rate Decision, Thursday
- Bank of Japan Meeting, Friday
- Monex USA Online is always open.
EUR ⇑
The single currency’s slow grind higher began to level off this morning after the release of US retail sales did little to sway markets in either direction of the Fed’s possible decisions tomorrow of 25 or 50 basis points of easing. Though the European Central Bank, for its part, has already cut its interest rates by 50 basis points so far this year, all eyes are on the Fed after several ECB officials over the last few days have re-emphasized Christine Lagarde’s sentiment from last week’s meeting, that the ECB is highly unlikely to ease again in October and will be looking toward its December meeting for any further movement. Such statements are keeping the EUR afloat in comparison with the USD, though trading this morning is quite choppy after the release of US retail sales.
JPY ⇓
Japanese Yen’s roller coaster ride continues; after initially breaking through its strongest point against USD in 14 months during yesterday’s early session, the currency slid back and ended up closing weaker on the day. JPY can be seen, right now, as a bellwether for investor sentiment on the Federal Reserve’s interest rate decision tomorrow – markets are flip-flopping on either side of the 25-or-50 debate and can’t seem to stick to any sort of consensus. Whatever decision is released tomorrow, JPY will likely be one of the most volatile currencies in the G10 because of it, ahead of the Bank of Japan’s own meeting and interest rate decision late Thursday night in the US. Though the BoJ is not expected to change its key interest rate this time around, officials have noted that there is a decent chance for another hike through the remainder of this calendar year, setting the scene for a substantially smaller interest rate differential between the US and Japan.
