August 28, 2024

“The dollar is tentatively lifting from its 13-month lows this morning as markets brace themselves for some key risk events in the second half of the week.”

Tim Hallinan – Trading Director

Main Headlines

US prosecutors are launching a revised federal indictment against Trump accusing him of trying to overturn the 2020 election illegally. This comes after the US Supreme Court ruled that the former president would have broad immunity from prosecution, meaning that prosecutors have had to narrow the case to improve their chances of victory.

In a deeply pessimistic speech in the Downing Street garden yesterday, UK Prime Minister Keir Starmer warned that the October budget would be ‘painful’ and that the British people must accept short-term pain for long-term good’ as a result of ’14 years of rot’ that would be difficult to overcome. He ruled out changes to taxes for ‘working people’ but made clear that the wealthy are likely to be hit.

GBP

Sterling rose to a fresh two-year high yesterday and has mostly held firm against an attempted dollar rebound. Excitement following Fed Chair Powell’s rate cut go-ahead on Friday has cooled off and tonight’s Nvidia earnings report is a key event for markets, which means we are trading in a slightly softer risk environment this morning. That means that sterling has cooled slightly, despite further gains in the short-term rate differential overnight. GBP/EUR has gained some upward momentum, meanwhile, and Starmer’s doom speech about the public finances yesterday appeared not to put a dent in rising sentiment around the pound. The Bank of England’s most notorious hawk Catherine Mann speaks later today, although she will likely struggle to nudge sterling higher when stressing the upside inflationary risks, given that few will be particularly surprised.

EUR

The euro is inching lower amid some risk being taken off the table this morning. A reminder of Germany’s continued economic weakness appeared to be a drag on the common currency yesterday – particularly against sterling – and we are seeing some retracement of the strong rally we saw on Friday after the keynote Jackson Hole speech. Data today is mostly low tier with money supply and lending data, leaving EUR/USD in the hands of some Fed speakers and the equity response to Nvidia earnings tonight. The domestic inflation data then starts rolling in tomorrow.

USD

The dollar index is modestly rebounding this morning as traders readjust their post-Jackson-Hole positioning, and brace for both an Nvidia earnings report and some key inflation data later this week. This cooling risk appetite has offset rate spreads that have actually continued to move against the dollar, with swaps markets back to fully pricing 100bps of easing by the end of this year and 192bps by the end of Q2 2025. Consumer confidence yesterday rose to a six-month high but failed to generate any upward momentum for the greenback, as the details pointed towards some real concern about the jobs market, despite a boost to sentiment from an equity bounce-back and impending Fed rate cuts. Nvidia is arguably the biggest event for FX today – as the yardstick for AI’s potential, Q1’s bumper report gave wide support to risk-sensitive FX and that could repeat when numbers get released after the bell. And some disappointment in the outlook for AI and future earnings growth in the sector would likely buoy the safe havens: USD, CHF, JPY. A speech from the Fed’s Bostic will also be watched today.

Markets

Shares edged higher yesterday despite a softer risk environment in FX, with markets now braced for a critical earnings report from AI giant Nvidia after the bell today. Expectations are high – the consensus is looking for a doubling in Q2 revenue and options markets are positioned for a 10% move, or $300bn in cash terms.

Main Economic Events (All Times CET)

3:30am: Australian CPI
7:15am: Fed’s Waller speaks
10:00am: Eurozone Private Loans
2:15pm: BoE’s Mann speaks

To learn more about Ballinger Group, please visit our website or our LinkedIn page.