August 20, 2024

“The dollar continues to inch lower as markets price in a more optimistic outlook for rates and the global economy. There is a lot of activity in Europe today, with the Swedish Riksbank cutting rates and Swiss National Bank Chairman Jordan set to speak.”

Sam Cornford – Head of Trading

Main Headlines

US House of Representatives Republicans claimed yesterday that US President Joe Biden has committed impeachable offences, in a report of nearly 300 pages describing how he allegedly conspired to ‘commit influence peddling and grift’ to ‘enrich his family by abusing his office of public trust’. The White House sees the attack as an attempt for revenge following Trump’s double impeachment by a Democratic-led house.

The search is on again today for six missing people, including British entrepreneur Mike Lynch, after a yacht sank in a violent storm yesterday morning off the coast of Sicily. Lynch had grabbed headlines for selling his software company Autonomy, before spending the last decade fighting off fraud charges.

GBP

Sterling continued to grind higher yesterday and has tested the 1.30 mark this morning for the first time since notching a one-year high last month. The price action tracked a steady climb in risk assets across markets without any obvious trigger beyond increasing optimism around dovish rhetoric from Fed Chair Powell in Jackson Hole on Friday. The pound remains some 1.5% off the peak against the euro, however, having struggled to recover from the aftermath of the Bank of England cut earlier in the month. There is no data out of the UK today, and eyes will remain fixated on the PMIs and Governor Bailey’s speech later in the week.

EUR

EUR/USD is closing in on its highest level in a year and has now gained 3.7% since two months ago. Similar to sterling, gains over recent days have come in the absence of any material news flow, and largely boils down to a downward bias embedded into the dollar ahead of what is expected to be a pivotal speech from Powell this week. There are a couple of low-tier data points today, including current account data and the final revision to the July CPI figure. More action is likely to come on the crosses, however, with EUR/CHF set to be nudged by a rare speech from SNB Chairman Jordan this morning. EUR/SEK has struggled for direction in some choppy trading this morning, too, after the Riksbank cut rates by 25bps and hinted at an accelerated cutting cycle that could include up to three extra cuts by the end of the year.

USD

The broad dollar continues to plumb to new depths as markets build up confidence in a rate cut go-ahead from Powell in Jackson Hole this Friday. No meaningful data arrives until tomorrow evening’s FOMC meeting minutes from July, but there is a clear bearish bias for the dollar right now as we get closer and closer to that first Federal Reserve rate cut. Rate differentials explain little of the movement over the past few days – rather, it’s likely that investors are just getting more optimistic about the Fed bringing rates down swiftly and the economy not suffering too much. Bostic and Barr from the Fed speak tonight, and any further dovish signals could send the dollar a notch lower, with the main question surrounding whether officials are likely to entertain the idea of a 50bps cut before the end of the year. In Canada, meanwhile, inflation is expected to fall further to 2.5% and cement bets on a string of further rate cuts before the end of the year.

Markets

US and European equities inched higher yesterday in a quiet session with few major data impulses, as hopes build for a dovish Powell speech in Jackson Hole this Friday. The VIX fear gauge has now fallen to levels preceding the meltdown from earlier in the month, in what has been a remarkable return to normality.

Main Economic Events (All Times CET)

3:15am: China Loan Prime Rates
3:30am: Australian Monetary Policy Meeting Minutes
11:30am: SNB Chairman Jordan speaks
2:30pm: Canadian CPI
7:35pm: Fed’s Bostic speaks
8:45pm: Fed’s Barr speaks

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