Fed Chair Powell the focus today

The euro briefly dipped below $1.11 against the dollar yesterday but has since recovered to trade at around $1.1120 this morning, while sterling is back up at its week’s highs against the US currency at about $1.3120 and is also slightly firmer versus the euro at 84.8p (helped by some more solid economic data out of the UK). All the focus today, meanwhile, will be on Fed Chair Powell’s speech at the Jackson Hole central banking symposium, in which he is likely to all but confirm that the Fed will cut interest rates at next month’s policy meeting and indicate a 25bps move is probable, in line with current market expectations.

Government bond yields closed higher for the first time this week yesterday, on the back of firmer than expected PMI data in the main economies, with US, German and UK 10-year yields nudging up by around 5bps or so. In equity markets, European stocks were flat on the day while the Nasdaq led a decline in US indices, falling by 1.7%.

The flash August PMIs were firmer than forecast, driven by strengthening services sector activity, and point to ongoing expansion in the main economies in the third quarter of the year, with the UK and the US continuing to perform better than the Euro area.

Fed member Harker has said the central bank needs to “start the process” of lowering interest rates,  arguing that “a slow, methodical approach down is the right way to go,” which suggests he favours a quarter-point cut as the first step.

Apart from Powell’s speech today, which obviously will garner all the attention, economic data due include the ECB’s latest survey of Euro area consumers’ inflation expectations and new home sales in the US.