- Yesterday was a brutal day for markets with global equity indexes turning red and fuelling risk reduction across currency markets. Once again, the Japanese yen was the star performer as traders bid farewell to the carry trade with some analysts suggesting that the Federal Reserve may produce an intra policy meeting rate cut amid fears that the central bank is behind the curve as Friday’s labor market data raised concerns of a recession. A glimmer of hope appeared in the form of the US Services PMI, which came in better than expected however the data didn’t quash the markets negative sentiment of a slowing US economy.
- Federal Reserve Bank of San Francisco President Mary Daly said that the labor market is softening and indicated that the FOMC should begin cutting interest rates soon. She said, “Policy adjustments will be necessary in the coming quarters” adding, “We have now confirmed that the labor market is slowing, and it is extremely important that we not let it slow so much that it tips itself into a downturn.” The swaps market is currently pricing in a near 50bp cut at the September meeting with a total of 100bp priced in for the remainder of the year.
- EURUSD remains well support, trading comfortable above 1.09 after briefly trading through 1.10 yesterday before running into offers. Ahead this morning we await eurozone retail sales data and German factory orders, although the outlook for the US economy will likely influence EURUSD in the coming days.
- Elsewhere, The Aussie dollar edged higher after the RBA kept interest rates unchanged at its policy meeting. The benchmark rate was kept at a 12 year high, with officials waiting for inflation to abate, before joining many other global central banks and cutting rates.
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