FX News Today
European Fixed Income Outlook: 10-year Bund future opened at 159.71, versus a close of 159.63 on Wednesday. The 10-year cash yield is down -0.5 bp at 0.402%, while Treasury and JGB yields are still up 0.2 bp, but down from earlier highs. A rebound in Asian stock markets, on hopes of fresh US-Sino trade talks, put pressure on core bonds, but the Chinese markets quickly erased much of their early gains, and in Europe fresh Italy jitters, amid reports that Finance Minister Tria threatens to resign over budget talks, are adding support to Bunds in opening trade. US futures are heading south after a closing narrowly mixed on Wednesday. There is some speculation that Trump may be changing gears with increased efforts behind the scenes to reach deals in orders to win support, but investors remain cautious. EM markets also remain in focus, as Turkey’s central bank meets, amid ongoing political pressure not to hike rates too much, if not at all. Oil prices pulled back from highs over USD 70 per barrel and are trading at USD 69.86. Released at the start of the session, German HICP inflation was confirmed at 1.9% y/y as expected, but the focus is on ECB and BOE meetings today. Both are expected to keep rates unchanged, but Draghi is also likely to confirm the planned phasing out of QE, while downward revisions to growth projections and unchanged cautious guidance on rates will offer an opportunity to wrap the changes in a dovish leaning presser.
FX Update: Yen weakness has been the dominant theme, albeit moderate, during the pre-London open session in Asia, while the Dollar has consolidated losses seen yesterday. USDJPY lifted, as the Japanese currency saw some more of its safe haven premium unwind, following yesterday’s news of the US invitation to senior Chinese officials to restart trade talks. This comes, in true Trumpian fashion, with the US having loaded the gun with tariff hikes on a further $200 bln worth of Chinese imports and threatening to hike tariffs on the remaining $267 bln of imports. USDJPY has lifted back to the mid-111.0s, while EURJPY, AUDJPY and other Yen crosses have concurrently firmed up. Most stock markets in Asia have rallied. EURUSD, after printing a one-week high yesterday at 1.1650 (following news of the US invitation), has drifted to around the 1.1620 mark. The biggest mover out of the main Dollar pairings and associated cross rates has been AUDJPY and CHFJPY, with both showing 0.3% gains.
Charts of the Day
Main Macro Events Today
- BOE Monetary Policy & Bank Rate – Expectations – BoE’s September policy meeting should prove to be a non-event for markets with no changes expected to settings or guidance at this juncture. The “Old Lady” should reaffirm its commitment to a gradual tightening course, attaching the usual caveats about the risks stemming from enduring Brexit uncertainty and escalating global trade protectionism.
- ECB Press Conference & Rate Decision – Expectations – ECB is widely expected to leave the guidance on rates untouched and confirm the phasing out of net asset purchases by the end of the year. Back in June, Draghi said that ECB anticipates to cut back net asset purchases to EUR 15 bln from October and phase out purchases in December. Focus will also be on the details on planned tweaks to the re-investment strategy, which will likely bring more flexibility for ECB as redemptions start to become more important.
- US CPI and Core – Expectations – CPI is forecast rising to 0.2% m/m for both overall and core prices.
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Andria Pichidi
Market Analyst
HotForex
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