Today Fed Chairman Jerome Powell will deliver a keynote speech at Jackson Hole (2pm GMT). This is a highly anticipated event this week as Powell will likely discuss September interest rate cuts.
Powell’s role for today will be to reassure the audience that the Fed is keeping up with the curve and can achieve the ideal scenario of a soft landing of subdued inflation and a robust economy. Traders will be closely monitoring his comments and looking for any kind of signal about the timing, size, and pace of interest-rate cuts. With a 25 bps cut already priced in for September, markets could see an almost full percentage point of reductions by year end.
DXY slightly recovered on Thursday, rising 0.4% and stopping a four-day losing streak. It ended the day around 101.30. This is due to stronger than expected US PMI data, coming in at 54.1 above market expectation of 53.5. Futures on the S&P 500 rose 0.4% and 10-year Treasury yield was steady at 3.84%.
Euro-area headline inflation is expected to slow to 2.1% year on year in August from 2.6% in July. This data is due Aug 20th, and as headline inflation gets closer to the 2% target, we expect the ECB to cut rates by 25 bps in September. They will stay cautious and aim for gradual, quarterly cuts due to sticky service price gains.
The Euro lost more than 03% against the USD following stronger US PMI data, ending the day above 1.1100.
Stronger UK PMIs, particularly from manufacturing and services, gave the pound a slight lift against the single currency, lowering EURGBP to below 0.8500. This is due to EUR PMI giving more mixed results, with weak manufacturing but strong services, as a result of the recent Paris Olympics.
Bank of Japan Governor Kazuo Ueda recently signaled the BOJ is still aiming towards higher interest rates. This led to Yen strength against all major peers, including USDJPY falling to mid 145-146 area during overnight trading. This was a 0.7% increase versus the dollar in total.
