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Powell not so dovish but door open for a September cut, tomorrows US CPI release hugely important

Good morning

 

Feds Powell testified to Congress yesterday, not quite as dovish as some would have hoped, making it clear the Fed are cautious of cutting rates too early but not fully ruling out a cut later this year.  He said he sees the labour market as strong but not overheated, he also mentioned that inflation is not the only risk US are facing, perhaps a nod to some of the recent softer economic data and the idea of the Fed’s dual mandate. 

 

Market reaction wasn’t huge but USD buying was enough to take GBPUSD from 1.2820 to 1.2780 and EURUSD from 1.0825 to 1.0805, they are now both 20 pips or so higher as I type.  A Fed rate rise certainly looks well off the table now, a cut is really all about timing.  Goldman Sachs looks for a September cut of 25bps and then perhaps another 25bps cut in December.   

 

Powell does speak again today, the bulk of the speech is the same but there may be a twist in the Q&A which will keep the market on its toes as we continue to seek clues as to the potential for September rate cuts.

 

RBNZ did indeed leave rates unchanged at 5.5% as expected, although they did come across slightly more on the dovish side this time, noting that they see persistent inflation easing over time and that inflation should fall within the 1-3% target area in H2 2024.  There was also acknowledgement of a slowing economy.  NZD is lower across the board as the market begins to price a rate cut in October.  GBPNZD is now 2.1030, AUDNZD 1.1085 and NZDUSD 0.6085.  Next week we have the latest NZ CPI release, a softer reading will reinforce the potential for rate cuts.  On the subject of New Zealand, a very happy birthday to the regular reader who lives on the opposite side of the world.   

 

Other than Powell, we do have some other central bank officials speaking today including BoEs Pill and Mann.  It is possible Pill could sound more on the dovish side, while the historically hawkish Mann is likely to remain in the ‘no change’ camp.  UK GDP early tomorrow morning is expected to move up from zero to +0.2%, unlikely to have significant market impact.  US CPI inflation out tomorrow is far more likely to see market reaction.

 

Congratulations to Spain for their win over France yesterday, including a fantastic goal from their 16 year old superstar, putting them in the finals of Euro 2024.  Their opponents will be decided this evening as England take on the Netherlands.  A tough call, England slight favourites but as we know it is anyones guess as to which England team will show up, the fast flowing, attacking, dangerous team or the slow, pass it around the back team.  So far we’ve really only seen the latter, now is the time for the former to make an appearance. 

 

Speaking of a rare appearance, the fossil of a new species of plant-eating dinosaur that roamed the earth some 125 million years ago has been uncovered in the Isle of Wight.  The find, with 149 bones, makes it the most complete UK dinosaur discovery in 100 years.  Makes you wonder what else is lurking under our feet?

 

-  14.30 BoEs Pill speaks

-  15.00 Feds Powell speaks

-  16.30 BoEs Mann speaks

-  19.00 Fed Beige Book

-  19.00 US monthly budget statement

-  19.30 Feds Bowman speaks

-  23.30 Feds Cook speaks

-  02.00 AUS consumer inflation expectations

-  07.00 UK GDP, industrial production

-  07.00 German HICP

 

 

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