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Federal Reserve rate meeting – 02/11 – there is unlikely to be too many surprises this week when the Federal Reserve is expected to raise the Fed Funds rate by another 75bps, following on from three similar moves in June, July and September. In September Fed chair Jay Powell indicated that the FOMC were “strongly committed” to driving inflation lower while signalling that more rate rises are on the way. Powell went on to say that there was no painless way to drive inflation lower, with the prospect that we could well see another 100bps by the end of this year at the bare minimum. The tone was also markedly different, with the Fed downgrading its annual GDP target to 0.2% in 2022, with Powell admitting that a recession might be possible. Core inflation is forecast to decline to 4.5% this year, before falling to 2.1% by 2025. Since then, we’ve had a succession of Fed speaks talking up the prospects of even more aggressive tightening, with the prospect that we might see another 150bps by year end which would put the Fed Funds rate at 4.75% by year end. At the end of last month there was some chatter… Read More »The Week Ahead: Federal Reserve, Bank of England, US non-farm payrolls, BP, Rolls-Royce results

Another extraordinary week is coming up. The Fed is almost certain to raise rates, putting the spotlight on Chairman Powell, who needs to open the door for a smaller rate hike in December without giving the impression of a pivot. Meanwhile, central bank decisions in the UK and Australia will be crucial for those currencies, before the week concludes with the latest edition of nonfarm payrolls. 

US economy is forecast to grow at an annual rate of 2.4% in Q3. Investors reassess Fed’s policy outlook following dismal US data. DXY technical picture points to a bearish tilt. The US Bureau of Economic Analysis will release its first estimate of the third-quarter Gross Domestic Product (GDP) on Thursday, October 27. Markets forecast the US economy to expand at an annualized rate of 2.4% following the 0.6% contraction recorded in the second quarter. The Federal Reserve Bank of Atlanta’s latest GDPNow estimate, published on October 19, however, showed that the GDP is expected to grow by 2.9% in Q3. Following the Federal Reserve’s decision to hike the policy rate by 75 basis points (bps) in September, policymakers have acknowledged the heightened risks of an economic downturn but reiterated that they will remain focused on taming inflation until they see a consistent increase in the unemployment rate – full employment being another of their key mandates. In the Summary of Economic Projections released alongside the policy statement, Fed officials projected the GDP to grow by 0.2% in 2022 and 1.2% in 2023.  Market implications Nick Timiraos, The Wall Street Journal’s chief economics correspondent who correctly leaked the 75 bps… Read More »US Q3 GDP Preview: Dollar bears to retain control on weak GDP print

EUR/USD: 0.9957 Euro’s rise from Oct’s 0.9632 trough to 0.9875 last Tue suggests further ‘volatile’ swings above Sep’s 2-decade trough at 0.9537 would continue, yesterday’s break of 0.9899 to 0.9976 would re-test 0.9999, above extends said upmove from 0.9537 towards 1.0050 objective later. On the downside, only a daily close below 0.9899 would indicate a temporary top made and risk weakness towards 0.9849, then 0.9808. Data to be released on Wednesday Australia CPI, Japan leading indicator, coincident index. France consumer confidence, Italy trade balance, Swiss investor sentiment. U.S. MBA mortgage application, building permits, goods trade balance, wholesale inventories, new home sales and Canada BOC rate decision.

The consensus among analysts is that the BOC will raise rates another 75bps, leaving the target rate at 4.0%. Lately, Canada has been “leading” the Fed since its meetings are scheduled before its southern neighbor's. Since both countries are facing similar situations, what the BOC does is often interpreted as a little foreshadowing of what to expect out of the Fed. Therefore, if the BOC doesn't deliver on expectations, it could shake confidence in the consensus that the Fed will also raise rates by 75bps. Canadian economic data has been doing relatively well over the last couple of weeks, which is seen supporting a strong move by the BOC. But there just recently was a fly in the ointment: US flash manufacturing PMIs fell into technical contraction this month. Canada doesn't have a comparable flash reading, meaning that the situation there could be similar, but it just isn't known. Canada first to pivot? Another difference is that Canada has had core inflation slowly falling unlike the US, but still above expectations. That has raised expectations that even though the BOC is expected to hike, it will do so “dovishly”. That is, after the rate hike, Governor Macklem will tone down… Read More »BOC, BOJ rate decisions this week

AUD/USD Current Price: 0.6396 AUD/USD benefited from firmer stocks and easing US government bond yields. Australian annual inflation is foreseen up by 7% YoY in the third quarter of the year. AUD/USD gains upward traction but still needs to break above 0.6450. The AUD/USD pair hovers around the 0.6400 level early in the Asian session after peaking on Tuesday at 0.6411. The pair spent the first half of the day consolidating just above the 0.6300 level, gathering upward momentum during US trading hours. The advance can be attributed to the positive tone of US equities, as Wall Street managed to extend its recent gains on the back of encouraging earning reports. Additionally, market players are lifting bets the US Federal Reserve will slow the pace of tightening before year-end, as policymakers began expressing their concerns over the negative effects of higher rates. Whether AUD/USD could extend its gains will depend on the upcoming Australian data. The country will release the Q3 Consumer Price Index, expected to have increased at an annual pace of 7%. The quarterly reading is foreseen at 1.5%, decreasing from 1.8% in the previous quarter. The RBA trimmed Mean CPI is foreseen at 5.6% YoY, up from… Read More »AUD/USD Forecast: Australian inflation could make it or break it

EUR/USD – 0.9884 Euro’s rise from Oct’s 0.9632 trough to 0.9875 last Tue suggests further volatile swings above Sep’s 2-decade trough at 0.9537 would continue, Fri’s rally from 0.9705 and then yesterday’s brief break of 0.9875 resistance to 0.9899 has retained daily bullishness but 0.9960 should remain intact. On the downside, only a daily close below 0.9808 would risk further weakness towards 0.9755. Data to be released on Tuesday Germany Ifo business climate, Ifo current conditions, Ifo expectations, U.K. CBI trends orders. U.S. redbook, monthly home price, consumer confidence and Richmond Fed manufacturing.

USD/DXY Tumbles, 2YR US Bond Yield Slumps 14 BPS, AUD Climbs Summary Japan’s Ministry of Finance (MOF) may have intervened in the FX market on Friday, buying Yen against the US Dollar near the 152 level, according to Reuters quoting a government official. In early Asian trade, the USD/JPY was trading around 147.70 after it hit a high at 151.94 on Friday. On his visit to Australia, Japanese PM Fumio Kishida told reporters that the government “cannot tolerate excessively volatile moves driven by speculative trading.” In the other currencies, the Bank of Thailand (Thai central bank) said over the weekend that it was closely monitoring a volatile, weak Baht, driven by Dollar strength. Thailand’s currency has depreciated by 13% against the US Dollar. USD/THB plummeted 1.5% to 36.60 (38.20 Friday). The US Dollar slumped against the other Asian and EMFX. Against the Singapore Dollar, the Greenback (USD/SGD) closed 0.60% lower to 1.4150 (1.4240). The British Pound (GBP/USD) rebounded 0.51% against the Greenback to 1.1300 (1.1215) as UK politics steadied following a week of turmoil. Boris Johnson pulled out of the Conservative leadership race paving the way for Richi Sunak to become Britain’s prime minister. The Dollar Index (USD/DXY) which measures… Read More »Yen surges, Japan Inc behind? Sterling soars, UK politics steadies

The pound has come under pressure once again, with political uncertainty building on economic concerns. Meanwhile, Snap shares have lived up to their name, with the Nasdaq coming under pressure as a result. Sterling slips as political uncertainty builds on wider bearish sentiment “The pound finds itself back under pressure today as traders are faced with yet another bout of political uncertainty and economic concerns. This morning’s retail sales data highlighted the struggles facing consumers and businesses alike, with people spending 3.9% more for 6.9% less goods. Meanwhile, traders are faced with yet another bout of political uncertainty, with Penny Mordaunt officially throwing her hat into the ring for a potentially doomed two-year stint that will likely be dominated by inflation and recession.” Snap shares drag Nasdaq into the red  “The tech-focused Nasdaq lagged its US peers today, with Snap shares capitulating on growing losses thanks to inflation fuelled advertising struggles. Slowing growth and rising losses bring little confidence for a stock that is largely priced on future revenues. Unfortunately, we are seeing both businesses and consumers tighten their purse strings thanks to rising costs, with advertising revenues dented as a result. With five of the top six largest stocks… Read More »UK election uncertainty proves a drag for GBP

Europe It’s been another negative day for European markets, although a retreat in short term yields, which is acting as a drag on the US dollar, is helping to support a rebound off the lows of the day. The FTSE100 even managed to claw its way back into positive territory during the afternoon session, despite retailers showing significant weakness on the back of another big slide in UK retail sales in September, while a profits warning from Adidas, isn’t helping either, prompting weakness in the likes of JD Sports, Frasers Group, while Next is also sharply lower, along with the likes of H&M and Zara owner Inditex. The rise in UK gilt yields is acting as a drag on house builders as concerns rise that the UK budget statement might be delayed by any new incoming Prime Minister. There’s been a positive reaction to the Q3 numbers from Deliveroo, despite the company downgrading its expectations for sales growth and upgrading its profit forecasts. The uplift is hugely welcome given that the shares are already close to record lows, and given a lot of pessimism is already in the price. Gross Transaction Value (GTV) saw an increase of 8% year on… Read More »UK retail sales plunge again, possible budget delay weighs on sterling