Good morning
Welcome to August. Could this be the day we see an interest rate cut in the UK? The BoE announcement is at midday, the consensus is for a 25bps cut which would take rates to 5% although I have said before this is based on a projected vote of 5-4 in favour of a cut, so there are clear risks that one different vote sways the decision. Some are calling it a 50/50 chance of a rate cut, I see the chances greater for a cut.
This morning we have seen GBP get sold off, GBPUSD has traded from 1.2850 or so down to three week lows at 1.2790, while GBPEUR is 1.1835 as the market starts to get the idea that a rate cut really is likely. As always, it is not only the rate decision and vote-split that is important, but also very much the statement that comes with it, which may give us some sort of guidance as to future rate path. I have already seen calls for another 25bps cut in November which would leave rates at 4.75% into the year-end.
Sp what happens to GBP from here is down to the decision itself, the vote split, and any forward guidance. A vote-split of 6-3 in favour of a cut would be a dovish signal for sure. Even if we see no rate cut today, there is a chance Bailey could talk of cuts later in 2024, in other words a dovish hold. It’s going to be interesting.
The Fed kept US rate unchanged at 5.5% yesterday evening. The door however is wide open for a September cut, Powell made it clear once again that the Fed has a mandate to control not only inflation but also employment and with some weaker economic data recently there seems more concern of a slowing economy than inflation at the moment. Therer has even been some talk that we could see a 50bps cut in September and the market is actually pricing in a little under 75bps cut through 2024 and a total of 2% in cuts by the end of 2026. Powell did his best though to also make clear that there is plenty that can change in the coming weeks and a cut is not a certainty. ISM data today and of course nonfarm payrolls tomorrow will be closely watched.
Japanese Yen surged to its strongest level since March, we saw a decent sell-off in USDJPY yesterday morning and then traded as low as 148.50 overnight. As always I do wonder whether Japan are drip-feeding intervention in rather than trying the usual shock and awe tactic. Recent weak US data and BoJ rate rise have helped push USDJPY down, with an official helping hand of course. As I type, USDJPY is at 150.00, unable to hold lower, perhaps the lack of a US rate cut stemmed the USD selling. GBPJPY, which three weeks ago was at 208, treaded as low as 191.00 overnight and although it soon staged something of a recovery to 192.70, this mornings GBP selling sees the pair at 191.60. There was I worried about a few negative forward points not so long ago, those brave enough to ignore them and bought yen will be sitting very happy now.
AUD was little moved on trade data released overnight. The headline surplus of AUD 5.6bn was larger than expected but the previous headline surplus was revised lower, pretty much equalling things out. GBPAUD had been reasonably settled around 1.9675 overnight but this morning has slipped to below 1.9600
We’ve had a few days of pretty hot weather and today looks set to keep those temperatures in the high-20’s, however we have warnings of thunderstorms which could bring with it some heavy rain. It’ll cool down after but still hold at a reasonable and comfortable 24°c or so. I can live with that.
Plenty of action and medals for GB in the Olympics, including gold for women’s rowers and men’s triathlete Yee. Let’s hope he suffers no after effects from swimming in the Seine. Athletics starts today, sounds interesting although it kicks off with the mens and women’s 20km walk. One really has to be a fan of the sport to be glued to that. Golf starts today, I’m not really sure I see that as an Olympic sport but it could be interesting nevertheless. I think there is some BMX racing today which could be fun, i don’t mind watching a bit of that once every four years.
Stitches are due to be coming out this morning, assuming all is healing as it should. I have my fingers crossed.
Have a fantastic day…
- 09.00 ECB economic bulletin
- 10.00 EU unemployment
- 12.00 BoE rate announcement
- 12.30 BoE press conference
- 12.30 US challenger job cuts
- 13.30 US initial jobless claims
- 14.30 CAD S&P manufacturing PMI
- 15.00 US manufacturing ISM
- 17.15 BoEs Pill speaks
- 02.30 AUS PPI
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