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Currencies Stabilise As Fed Expectations Retrace

Markets are recovering their footing after slipping on a banana peel early in yesterday’s session. August’s consumer price reading landed very close to economist expectations on a headline level, but a surprise monthly acceleration in the core measure spooked investors, triggering a surge in the dollar and a rout in equity markets and risk-sensitive currencies. Rationality eventually returned, but odds on a half-point rate cut at next week’s Fed meeting were left near 17 percent, down sharply from 33 percent prior to the report. Longer-term repercussions seem minimal. Although expectations for a more aggressive kickoff to the Fed’s easing cycle...

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Dollar Jumps on Hotter-Than-Anticipated Core Inflation Print

Consumer price growth accelerated slightly in the United States last month, threatening to derail a more aggressive kickoff to the Federal Reserve’s imminent easing cycle. According to data published by the Bureau of Labor Statistics this morning, the core consumer price index – with highly-volatile food and energy prices excluded – rose 0.3 percent in August from the same period last year, and climbed 3.2 percent on a month-over-month basis. This was slightly above the monthly consensus estimates among economists polled by the major data providers ahead of the release, which had been set at 0.2 percent. On a headline...

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Dollar Retreats as Trump’s Odds Slip

Financial markets are in relief mode this morning after Taylor Swift endorsed Kamala Harris for president, reducing demand for hedges against a rally in the dollar or a resumption in trade war hostilities. The greenback is reversing its three-day rally, short-end Treasury yields are declining, and North American equity indices are retreating ahead of the open. In related news, Harris managed to flip prediction market odds in her favour during a televised debate with former president Donald Trump. Economic policy details were limited, and neither of the candidates managed to land a knockout blow big enough to decide the race,...

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USD bouncing back

• Shaky sentiment. A bit of a rebound in risk sentiment overnight following more turbulence on Friday after the US jobs report & Fed comments.• Market swings. US yields near bottom of their range. USD has recovered some ground, while the NZD & AUD have lost altitude.• Event radar. US Pres. debate (Weds), US CPI (Weds), & ECB meeting (Thurs) in focus this week. Will the USD’s revival continue? Markets have enjoyed a relatively more positive start to the week as the dust settled following Friday nights US jobs report and comments by Fed officials which generated further turbulence. From...

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Mean Reversion Dominates Markets After Inconclusive Jobs Report

Friday’s non-farm payrolls report failed to definitively settle the debate over the size of the Federal Reserve’s first rate cut. Markets initially added to bets on a plus-sized move after the Bureau of Labor Statistics reported a slower-than-anticipated pace of job creation through July and August, but soon reversed on evidence of underlying stability in labour markets – the unemployment rate edged lower, the prime age employment rate remained historically high, and growth in average hourly earnings showed signs of accelerating. A widely-anticipated speech from Governor Waller didn’t clarify things much either. Odds on a half-percentage-point move shot up as...

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