Quiet enough in FX markets

It remains fairly subdued in FX markets with limited enough price action. The euro and sterling are both marginally firmer against the dollar this morning, notwithstanding a continuing move higher in oil prices, trading at around $1.1640 and $1.3560 respectively, leaving EURGBP still sitting just below the £0.86 level. The yen is also a touch firmer against the US currency at about Y153, with US Treasury Secretary Bessent noting that he has “pretty good insight into what the Bank of Japan is going to do”, suggesting a BoJ interest rate hike is in the offing next week, while also challenging markets to “bet against” joint Japan-US efforts to strengthen the Japanese currency.

Brent crude oil prices are approaching $100 per barrel after US attacks on Iranian oil tankers overnight, which in turn followed Houthi strikes on energy facilities in Saudi Arabia. Government bonds yields are edging higher this morning as a result, while European equity markets have opened in the red (down around 0.5%) having closed broadly flat yesterday.

Economic data were thin on the ground. In the US, the small business optimism index dipped in August having hit a 2026-to-date high in July, while the New York Fed reported a slight fall in consumers’ 1- and 3-year ahead inflation expectations last month, though at 3.6% and 3.2% respectively they remained above pre-war levels.

Bank of England MPC member Taylor says the challenge for the central bank “has been to balance volatile and potentially inflationary global shocks against benign and disinflationary domestic conditions,”, adding that he believes it has been appropriate to hold interest rates steady up to now while remaining alert to the risks posed by elevated energy prices.

 It is another very quiet day ahead in terms of economic data, with the ADP weekly employment report in the US the only release of any note. At least there is the ECB meeting to look forward to tomorrow though!