N America Summary and Highlights 23 August

North America Session

The USD fell noticeably across the board in North America after Fed chair Powell signalled a September rate cut and did not rule out 50bps rather than 25bps.  U.S. bond yields fell.  The sense is that the Fed could act quicker than other G10 central banks in the coming months, which can persistently hurt USD sentiment.  Thus though the ECB is widely expected to cut in September, the next move is not expected until December and this has helped EUR sentiment versus the USD.  Focus into next week is whether USD/JPY builds further momentum towards 142. 

BOE Bailey key quotes in Jackson Hole were that it is too early to declare victory against inflation and the course will be a steady one.  This suggests gradually rate cuts and argue for 25bps November, with no move in September.  This helped give GBP a little extra momentum and the market is biased to test 0.8450 next week. 

Europe Session

USD moved sideways in Europe, as traders want to wait for Powell comments at Jackson Hole.  A more dovish view than recently is expected, including hints of a September cut.  However, traders are uncertain about whether Powell will be super dovish (endorsing ideas of 100bps of cut by year-end) or leaning against ideas of 50bps in September.  The FX market is seen reacting if any of these views occur.  GBP did push higher in technical trading.

JPY gains in Asia were partially reversed in Europe, but European traders also taking the view that BOJ Ueda left the door open to future rate cuts.  Chart based traders also noted that the USD bounce last week failed and the multi week bias is to test 142 and 140 on USDJPY. 

Meanwhile, expectations on ECB and BOE rate cuts continue to diverge causing some movements on EURGBP recently.  The July ECB accounts, plus ECB Rehn comments, suggest that the ECB is preparing to cut by 25bps on Sep 12 and the market is then discount a further cut in December and a 50% probability of a cut in October.  With low expectations of a BOE cut in September, it could be UK data or speeches that change relative expectations.  BOE Bailey is speaking at Jackson Hole today at 4pm and will be watched for clues.