It was another busy day as traders digested the latest Fed rate cut, the Bank of England’s decision to hold steady, better-than-expected US data, and developing stories in the Middle East.
What assets benefited from Thursday’s headlines?
We discuss them below!
Headlines:
- New Zealand GDP Shrank by 0.2% in Q2 2024 (expected -0.4%, revised down from 0.2% to 0.1%)
- Australia’s August labour market data Showed strength despite high interest rates
- Switzerland’s trade surplus It fell from CHF 4.1 billion to CHF 3.9 billion in August, the lowest level since April, as exports (-1.2% m/m) fell faster than imports (-0.1% m/m).
- SECO continues to forecast growth of 1.2%. Swiss GDP Growth in 2024, unchanged from June
- Euro area current account The surplus fell from €50.5 billion to €39.6 billion (€40.3 billion expected) in July.
- Bank of England keeps interest rates at 5.00% It stressed its “gradual” approach to mitigation.
- Member of the European Central Bank and President of the German Bundesbank Joachim Nagel He called for patience and said the central bank’s stance “should remain tight enough for long enough” to achieve its inflation target.
- Initial unemployment claims in the United States Decreased from 231K to 219K (230K expected) in the week ending September 14
- Philadelphia Fed Manufacturing Index Consumer Price Index rose from -7.0 to 1.7 (expected -0.8) in September; Employment Index rose from -5.7 to 10.7; Prices rose to 34.0, highest since December 2022
- US current account deficit The trade deficit widened from $241 billion to $267 billion (expected to reach $259 billion) in the second quarter of 2024 due to a growing deficit in goods.
- US Existing Home Sales Down from 3.96 million to 3.86 million (expected 3.92 million) in August
- The Conference Board’s Leading Indicator Improved from -0.6% to -0.2% (expected -0.3%) in August
- Japan National Core CPI Inflation rate rose from 2.7% to 2.8% year-on-year in August as expected
- The People’s Bank of China kept the interest rates on the five-year and one-year prime loans unchanged. In September, hopes for imminent monetary policy support were dashed.
Price movement in the broad market:
Dollar Index, Gold, S&P 500, Oil, 10-Year US Treasury Yield, Bitcoin Chart by TradingView
Asian trading kicked off Thursday with the Federal Reserve cutting interest rates by 50 basis points, which increased interest in “risky” assets. US stock futures rose, and Bitcoin (BTC/USD) crossed the $62,000 level. The Fed’s move initially supported the US dollar, which led to a decline in spot gold prices before the Hong Kong market opened.
But the dollar lost momentum after strong Australian jobs data and a risk-on mood. US 10-year Treasury yields and the dollar index fell, while WTI crude, gold and US stock futures rose in the European session.
Gold found further support from rising tensions in the Middle East linked to the explosion of Hezbollah devices, while crude oil prices got an additional boost from shrinking oil inventories issued by the US Energy Information Administration.
In the US session, the dollar rose briefly thanks to strong initial jobless claims and a strong report from the Federal Reserve Bank of Philadelphia, with the US 10-year bond yield rising to 3.77% and gold retreating from its high of $2,590.
But the dollar’s gains were short-lived as traders returned to riskier assets. Bitcoin ended the day at $63,000, WTI crude held at $71, and the Dow and S&P 500 closed at new record highs.
Forex Market Behavior: US Dollar vs Major Currencies:
US Dollar Overlay Against Major Currencies Chart by TradingView
The US dollar posted a strong performance on Thursday, starting with broad-based gains following a larger-than-expected interest rate cut by the US Federal Reserve, which was seen as positive for the US economy.
However, the dollar quickly reversed course after the Hong Kong market opened, as stronger-than-expected GDP data from New Zealand and jobs data from Australia sparked a risk-on and USD-negative mood during the Asian session. The dollar saw a steady decline that continued into the London session.
In Europe, traders were more supportive of the dollar, as positive reports for the US dollar helped to spur the upward pullback. The dollar briefly lost some ground against the pound after the Bank of England’s dovish decision, with GBP/USD hitting levels not seen since March 2022 before pulling back.
By the end of the London session, the dollar faced renewed selling pressure, ending the day slightly above its intraday lows against most of its major counterparts.
The dollar’s biggest losses were against risk-sensitive currencies such as the Australian dollar, the New Zealand dollar and the British pound, but it held on to gains against the Japanese yen and the Swiss franc. It is worth noting that the USD/JPY pair, after being rejected twice at the 143.75 area, extended its decline to 142.55.
Potential catalysts coming up on the economic calendar:
- Germany PPI report at 6:00 am GMT
- UK Retail Sales Data at 6:00am GMT
- UK Public Borrowing at 6:00am GMT
- Bank of England Monetary Policy Committee member Catherine Mann will speak at 9:00am GMT.
- Bank of Canada Governor Tiff Macklem will speak at 12:15 p.m. GMT.
- Canada Retail Sales Data at 12:30 PM GMT
- Eurozone Consumer Confidence at 2:00 PM GMT
- European Central Bank President Lagarde will speak at 3:00 p.m. GMT.
Sterling could see some volatility as UK retail sales and public borrowing data fall, as well as a speech from Bank of England Governor Catherine Mann.
Later, Bank of Canada Governor Macklem will speak ahead of the release of Canadian retail sales for July, which could show stronger numbers than June. Meanwhile, European Central Bank President Lagarde will highlight her speech on central banking in Washington, D.C.
Be careful with your GBP, CAD and EUR trading, and watch for any shifts in overall market sentiment!
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