Morning Report

September 26, 2023

“The Dollar’s yield advantage continues to climb this morning as the US bond markets adjust to the new rate outlook given by the Federal Reserve during its hawkish pause last week. Sterling is one of the biggest losers, down almost 4% in September.”

Tim Hallinan – Trading Director


Main Headlines

Six US senators, including Democrats Elizabeth Warren, Martin Heinrich, Edward Markey, Sheldon Whitehouse, and Jeffrey Merkley, along with independent Senator Bernie Sanders, have urged the US Treasury Department to enhance its oversight and provide clearer guidance to financial institutions in addressing the risks posed by climate change to the US financial system. In a letter sent to the Treasury last week, they acknowledged the department’s efforts on this matter but stressed the need for “added urgency” due to the growing risks associated with climate change.

On Monday, Britain signed a memorandum of understanding on trade with the US state of Washington. Additionally, officials mentioned that a similar agreement with the state of Florida could be reached in the near future. After its departure from the European Union, the UK had hoped for a comprehensive bilateral trade deal with the United States. However, President Joe Biden’s administration has put all talks on free trade agreements on hold, leading the British government to pursue state-level agreements instead.


Sterling continues its decline against the Dollar and the Euro in the early morning trade, as the US bond markets dominate the FX news. The seemingly unstoppable Dollar rally is beginning to turn the tide for Sterling market positions, as asset managers are now short the Pound for the first time since June, meaning that they have taken on a net position that would profit from its weakening, although hedge funds continue to be bullish. Until Friday, a light economic calendar means we can expect the British currency to move with external market drivers, as UK volatility triggers remain sparse.


The Euro remains unable to stem its slide against the Dollar today but is well bid against Sterling. In a speech yesterday, ECB President Lagarde said that the ECB were not discussing rate cuts and that rates will stay high for a while – for markets, however, this will have to be validated by the data. Continued disappointment in output data will likely not bode well for Lagarde’s stance, and JP Morgan FX strategists believe that this could lead to a sharp decline in the Euro if early rate cuts are forced. On the Eurozone calendar today, markets will keep a close eye on several speeches from ECB members Lane, Simkus, and Muller, as they prepare for the CPI prints on Thursday to inform rate expectations.


Soaring US Treasury yields are dominating the FX markets today, sending the Dollar rising to fresh 10-month highs a week after the Federal Reserve’s hawkish pause. The market has slowly absorbed the dot plots and higher-for-longer mantra, causing an ongoing upwards revision to long term rates. This is further compounded by the $134bn auction of notes across the next three days that are also putting downwards pressure on bond prices. In contrasting news, however, Americans are about to run out of excess pandemic savings, evidenced by inflation-adjusted bank deposits that are now lower than in March 2020 – this dwindling firepower may pose a threat to the consumer-driven US economic resilience that has been a central theme to the Dollar’s strength. On the diary today is the CB consumer confidence report, which is expected to show slightly lower consumer optimism.


European shares faced a fourth consecutive day of decline, while Treasury yields and the US Dollar continued to rise. Investors are adjusting their expectations for an extended period of high-interest rates. The Stoxx 600 benchmark in Europe fell by 0.8%, and US equity futures also showed a decline. This trend puts the MSCI All Country World Index, which is one of the broadest indicators of global equities, on course to match its longest losing streak in the past decade.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: Sweden Aug. PPI
9:00 a.m.: ECB’s Lane speaks
9:00 a.m.: ECB’s Simkus speaks
10:00 a.m.: ECB’s Muller speaks
2:00 p.m.: Hungary Rate Decision
4:00 p.m.: US Aug. New Home Sales
4:00 p.m.: US Sept. Conference Board Consumer Confidence
6:00 p.m.: Riksbank’s Jansson speaks
6:30 p.m.: ECB’s Holzmann speaks
Spanish Parliament opens debate on new PM; vote expected Sept. 27

Corporate Events

Earnings include Costco


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