North American Summary and Highlights 26 August

North American session

In generally quiet trade USD/JPY continued to correct post-Powell losses, moving above 144.50. EUR/USD fell to a low of 1.1150 early in the session before correcting to 1.1165, still slightly down on the day. GBP/USD had little direction. USD/CAD lost some ground, with the BoC and Fed paths now looking less divergent, dipping to 1.3475 from around 1.35, with AUD/CAD also weaker. 

July durable goods orders surged by 9.9% on a bounce in aircraft but ex transport orders fell by 0.2% sustaining a subdued underlying tone. August’s Dallas Fed manufacturing index was less negative at -9.7 from -17.5. Fed’s Barkin and Daly sounded moderately dovish. None of this had any significant market impact. 

European morning session

The JPY stabilised in Europe in thin conditions with the UK closed, after the gains seen in Asia.  Government bond and equity market reaction to the Israel/Hezbollah missile strikes has been muted on the widespread view that a war remains unlikely.  The focus remains more on the size of Fed rate cuts after Powell signals on Friday.  

European majors chopped sideways, with losses against the JPY being maintained.  However, the mood against the USD remains bullish, with the ECB and BOE expected to be more cautious in cutting interest rates relative to the Fed in the next 3 to 6 months.