Another downleg for the dollar
The euro and sterling soared to new highs for the year against the dollar following the release of the minutes of the Fed’s July meeting (published after the European close of business yesterday) – which all but confirmed a rate cut in September – rising to $1.1170 and $1.3120 respectively. They have both come back a bit since, trading at around $1.1130 and $1.3090 respectively this morning. Softer than expected German PMI data already released today is weighing on the euro a little though, with EURGBP at a new low for the week of £0.8505
US bond yields fell further yesterday, led by 2-year yields which closed around 6bps lower with 10-year yields finishing marginally down on the day (the latter are now just shy of their year to date lows of just under 3.79% back in early May), while German and UK yields also declined. Meanwhile, equity markets advanced in yesterday’s session, after pausing on Tuesday, with European and US stocks gaining around 0.5% (with the S&P 500 closing in on mid-July’s all-time high).
The minutes of the Fed’s July meeting all but confirmed a rate cut in September, which presumably Powell will rubber-stamp in his Jackson Hole speech tomorrow. The minutes note that, for “several” officials, “the recent progress on inflation and increases in the unemployment rate had provided a plausible case for reducing (rates) by 25 basis points at this meeting”, while “the vast majority observed that, if the (economic) data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting” (in September).
The economic data published since the Fed meeting, including inflation and unemployment, have bolstered the case for a rate cut. Moreover, yesterday’s revisions to the non-farm payrolls data showed the level of employment in March this year was 818,000 lower the initially estimated, meaning that the pace of jobs growth over the year to March was a good bit slower than previously thought (at around 173k a month, rather than circa 240k a month).
For the day ahead, economic data due include August flash PMIs for the Euro area, UK and US, as well as consumer confidence and the ECB’s Negotiated Wage Indicator (Q2) in the Euro area and jobless claims and existing home sales in the US. The Jackson Hole central banking symposium kicks off today as well.