Major assets were all over the place on Wednesday as traders priced in their biases on a Fed rate cut, US policy updates, and high-profile reports from the UK and US.
In the foreign exchange market, a higher-than-expected core US consumer price index helped the dollar recover some of its daily losses, but also limited its gains against risk-linked currencies.
What headlines dominated the markets yesterday? Let’s discuss the most prominent ones:
Headlines:
- Sarah Hunter, Assistant Governor of the Reserve Bank of Australia The labor market “remains relatively tight compared to full employment” and historical norms, he said.
- the US Presidential Debates This has led to a reversal of the “Trump deals” with the US dollar, bond yields and Bitcoin trading falling.
- Bank of Japan Member Junko Nakagawa He said the bank would continue to raise interest rates.If our economic and price expectations are met“He warned that wage growth was exceeding expectations and inflation was exceeding their target.”
- UK GDP No growth (0.0%) in July 2024, after flat growth in June 2024
- Industrial production in the United Kingdom Industrial production fell 0.8% month-on-month in July (0.3% expected, 0.8% previously); Industrial production fell 1.0% after a 1.1% increase in June
- UK National Institute of Economic and Social Research GDP Tracker It is expected to see quarterly growth of 0.2% in the third quarter of 2024 after a 0.5% rise in the second quarter.
- US core inflation rises The odds of a 50 basis point Fed rate cut have narrowed.
- Environmental Impact Assessment: US crude oil inventories Stockpiles rose by 0.8 million barrels versus an expected draw of 6.9 million barrels and an expected increase of 0.9 million barrels in the week ending September 6.
Price movement in the broad market:
Dollar Index, Gold, S&P 500, Oil, 10-Year US Treasury Yield, Bitcoin Chart by TradingView
Markets were fairly quiet early in the day, with major assets trading in tight ranges, but that changed after the U.S. presidential debate. The odds of a Harris win increased, weighing on 10-year U.S. Treasury yields, stock futures and the dollar, as traders saw less chance of higher tariffs or increased government spending under a Trump administration.
The European session turned around, with risk assets rebounding — likely on profit-taking after earlier declines in Asia. WTI crude rose from $66.00 to $67.50, gold retreated from record highs, and Bitcoin rose from its intraday lows.
In the US, all eyes were on the CPI report. While annual inflation fell to a multi-month low, the core reading lowered expectations for a 50 basis point rate cut by the Federal Reserve.
The dollar and 10-year yields initially rose after the report, but risk appetite quickly returned. Gold recovered from $2,502 to close at $2,512, bitcoin revisited its weekly highs, and U.S. stock indexes ended the day in the green.
Forex Market Behavior: US Dollar vs Major Currencies:
US Dollar Overlay Against Major Currencies Chart by TradingView
The dollar started weaker after the US presidential debate lowered the odds of a Trump victory, dampening expectations of increased government spending and higher tariffs.
The USD/JPY pair faced additional downward pressure after Bank of Japan (BOJ) official Junko Nakagawa backed another rate hike. However, the USD found some relief during the European session, likely as traders reversed their previous positions ahead of the US CPI reports.
US inflation showed weaker annual figures, but a rise in core inflation tempered some expectations of a 50 basis point rate cut.
The dollar briefly rose after the report, but the riskier mood led to mixed results. It extended gains against safe havens such as the Swiss franc and Japanese yen, but lost ground against riskier currencies such as the British pound, Australian dollar, New Zealand dollar and Canadian dollar.
Potential catalysts coming up on the economic calendar:
- Wholesale prices in Germany at 6:00 am GMT
- Italy quarterly unemployment rate at 8:00 am GMT
- ECB Policy Statement at 12:15 PM GMT, Press Conference at 12:45 PM GMT
- Canada Building Permits 12:30 PM GMT
- US PPI report at 12:30 PM GMT
- Swiss National Bank President Jordan to speak at 2:25 p.m. GMT
- US Federal Reserve Balance Sheet at 6:00 PM GMT
- New Zealand Manufacturing Index at 10:30pm GMT
Markets are in for another big day as the European Central Bank reverses its September policy. Reports suggest that President Lagarde and her team may cut interest rates in the Eurozone, so don’t even think about missing out on this announcement!
In the US, producer price updates could support or weaken the themes set by consumer inflation readings. Hotter-than-expected data points to a 25bp rate cut by the Fed next week and could send the dollar higher against safe havens but lower against risk-linked currencies.
Don’t forget to check out our new Forex Correlation Calculator!
Comments are closed, but trackbacks and pingbacks are open.