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richard evans

Bailey rate cut comments sends GBP lower

Good morning

 

A calmer day in the markets yesterday, for most of the time GBPUSD was in a 1.3270-1.3295 range, we did dip down to 1.3245 in the afternoon but it didn’t take long to head to the 1.3270 area.  EURUSD was similar, trading down to 1.1035 before recovering, although that recovery was more limited than GBP, leaving GBPEUR a touch higher at 1.2015,.

 

The slight USD uplift through the afternoon can be put down to better US employment numbers, this time in the form of ADP employment change which not only had a better than expected headline, but also a slight upward revision to last months reading.  We’ll find out on Friday whether or not this accurately indicates a better than expected nonfarm headline.    

 

Having said it was all a bit calmer, Yen saw some pretty heft moves.  We did have a bounce in USDJPY yesterday, trading up from 143.60 yesterday morning to to 147.20 overnight.  GBPJPY topped out just above 195.00.  Dovish talk from new PM Ishiba and BoJs Ueda responsible for the yen weakness.  Ishiba was reported as telling BoJ that further tightening is not appropriate right now, an unsual and rather direct comment.

 

All a bit more lively for GBP this morning.  We have seen GBP weakness which has dragged GBPUSD down to 1.3165 and GBPEUR to 1.1925.  BoEs Bailey has offered some dovish opinions in a Guardian article, saying we could except more aggressive rate cuts than the market is currently pricing.  Whether this is actually what he meant remains to be seen, we know BoE see inflation approaching target and that they would like to cut rates but for now data such as wage growth and consumer spending haven’t supported cuts.  While GBP is lower, market pricing of rate cuts to the year-end haven’t actually moved a great deal, still with around 36bps of cuts priced in.

 

EURUSD has remained reasonably stable, now 1.1035.  We do have PPI and PMIs from EU today but I’n not expecting them to have a great deal of market impact.  Rate cut expectations seem to be mixed with ECB officials happy to sit on the fence for now, saying all options remain open.  Tomorrow we could see an EU vote for tariffs on Chinese electric vehicles.

 

Markets are still looking at the Middle East for signs of further escalation.  US are trying to persuade Israel to not hit back at Iran and focus instead on the Hezbollah offensive.  I still feel Iran don’t want to be dragged into this, but they do have to make a show of force.  If Israel can hold off I’d expect Iran to remain on the sidelines.  Let’s hope so anyway.

 

EURCHF is up to 0.9420 after weak Swiss CPI numbers this morning.  We also had Turkish inflation which has come in at 49.4%, down from last months 52% but higher than had been hoped for.  Frightening numbers!

 

Today we will have the US Challenger job cut release, coming ahead of tomorrows key nonfarm payrolls.  We will also have the ISM services PMI, which certainly does have market moving potential.  Other than the headline, the breakdown will be closely watched, particularly the employment index given the focus the Fed is putting on the labour market.

 

For those clients who make regular payments, I see banks will have the power to hold suspicious payments for up to four days.  I’m not suggesting any of you have anything suspicious going on but I reckon banks will look to take advantage of this and find reason somewhere to hold funds longer than necessary.  Just for interest, let me know if you experience any such delays.

 

Both Villa and Liverpool won their Champions League matches last night.  For Villa it was something of a record, if I understood the commentators correctly, Bayern had not lost a group match in the competition since 2017.  A great performance.  However the big action comes this evening as Spurs take on the mighty Ferencvaros from Hungary. 

 

Next few days might actually stay dry, make the most of it as at the moment my forecast has rain drops every day from Sunday for the next week.  Enjoy a bit of sun and possibly some higher temperatures while it lasts.

 

Have a great day

 

-  07.30 CHF CPI

-  08.00 Turkey CPI

-  09.00 EU composite PMI

-  10.00 EU PPI

-  12.30 US challenger job cuts

-  13.30 US initial jobless claims

-  14.45 US S&P composite PMI

-  15.00 US services ISM, factory orders

-  15.40 Feds Bostic, Kashkari speak

 

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