September 25, 2024

“New Chinese stimulus measures and rising Federal Reserve rate cut expectations boosted emerging market currencies and the likes of NOK, SEK, and NZD yesterday, while the dollar continues its poor week. A particularly dovish Riksbank rate cut this morning has made headlines ahead of tomorrow’s crucial SNB decision, and then the focus is set to switch to US core PCE.”

Tim Hallinan – Trading Director

USD

The dollar edged broadly lower yesterday to threaten another one-year low, as China’s biggest post-pandemic stimulus package lifted global risk appetite and a surprisingly soft consumer confidence print boosted bets on further supersized Fed cuts. The news out of China and the brighter outlook for global growth benefitted risk-sensitive and commodity-linked FX, with NZD/USD rising 1.2%, USD/SEK slumping by 1.0%, and MSCI’s emerging markets index breaking a record high, for example. And naturally, USD/CNH sank 0.7% as the optimism around growth ultimately offset the effect of the rate cuts for the Chinese yuan. In the US, consumer confidence came in significantly lower than expected at 98.7, and a closely watched measure for its lead on unemployment – the number of those who see jobs as easy to get versus those who see jobs as hard to get – sharply softened, indicating that strains in the labour market are becoming more noticeable for the US consumer. Bets on a 50bps in November rose to 60%, in contrast to Governor Bowman’s messaging yesterday that urged for a ‘measured’ pace of rate cuts.

GBP

Sterling’s bullish momentum has outlasted the expectations of most, and although it is cooling off this morning, it broke ground not seen since 2022 against the dollar and the euro yesterday. Bank of England Governor Bailey’s fresh comments about a ‘gradual’ path lower for rates no doubt reconfirmed the more hawkish BoE picture compared to its peers, but this week’s move higher is more related to the weak eurozone growth picture and weaker US consumer confidence, rather than any domestic story. We only get a speech from the BoE’s Greene today, before markets turn to US and eurozone inflation data on Friday.

EUR

A Chinese stimulus announcement and some softer US data have taken EUR/USD to a one-month high this morning. That is something that few had expected on Monday when the PMIs saw the eurozone economy switch back to contraction. The euro’s strength has primarily been coming from external sources lately, and comes despite several domestic headwinds, particularly regarding German growth and fiscal concerns in France. There are few big events this afternoon in the eurozone, but elsewhere we have had a 25bp cut from the Riksbank this morning that has lifted EUR/SEK. Swedish central bankers signalled a quicker pace of rate cuts going forward that could include a 50bp rate cut before the end of the year, having revised down its inflation forecasts to below the 2% target into 2025. Tomorrow, the Swiss National Bank is likely to cut too, with markets signalling a 57% chance that this comes in the form of a 50bp move.

Markets

China’s monetary stimulus announcement sent ripples throughout the global financial markets yesterday. Chinese stocks were the main beneficiaries, with the Shanghai composite rising 4.2% in a single day, while a boost to China-sensitive and mining stocks across Europe and the US lifted the Dow and the S&P 500 just enough to notch some fresh record closing highs, even as weak US consumer confidence tempered the optimism. Metals and oil also rallied, with crude hitting a three-week high on an improved demand picture.

Main Economic Events (All Times CET)

3:30am: Australian CPI
9:30am: Swedish Riksbank Rate Decision
1:00pm: US Mortgage Applications & New Home Sales
10:00pm: Fed’s Kugler speaks

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