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Markets are increasingly certain US interest rates have peaked
The pound and the euro both gained over half a percent on the US dollar yesterday, after Federal Reserve governor Christopher Waller said he was “increasingly confident” that current interest rates would slow the US economy’s inflation to its 2% target.
For those hoping for rate cuts in the world’s largest economy, it was a pleasant surprise to hear these words come from one of the board’s most hawkish members. Waller’s remarks emphasised recent falls in labour demand and business activity, which he said pointed to progress on inflation.
Despite little meaningful data to chew on, the market’s reaction to his comments seemed to indicate there is a growing belief that the Federal Reserve will beat both the Bank of England (BofE) and the European Central Bank to the loosening lever.
In the UK, the prevailing impression is that policymakers remain stubborn over inflation. In contrast to Waller’s comments, the BofE’s Jonathan Haskal opined that nobody should expect interest rate cuts “anytime soon”.
Today is a more significant day for data: we’ll get a chance to read the temperature of German inflation along with US GDP growth. With more data comes the chance for more volatility, so don’t hesitate to get ahead of the curve and call your trader today.
The fragile ceasefire between Israel and Hamas continues, although both sides traded barbs yesterday as tensions remained high. The Shekel is up over 10% against the US dollar this month, helped by the Israeli Central Bank unloading a chunk of its reserves in support of the currency.
Saudi Arabian sovereign wealth fund PIF and private equity firm Ardian will take 10% and 15% stakes in Heathrow airport respectively, after longstanding investor Ferrovial decided to offload its shares in the London transit hub.
On the theme of air travel, Virgin Atlantic became the first airline to complete a transatlantic flight propelled by 100% alternative fuels. Dismissed by some climate groups as a gimmick, Virgin and the UK government hope the success will energise the quest to decarbonise air travel.
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GBP: Policymakers dig heels in
The pound touched its highest level in months against the US dollar and continues to make smaller gains against the euro.
BofE governor Andrew Bailey warned on Monday that rates would remain elevated for the foreseeable future, and Jonathan Haskal reiterated that stance yesterday. The UK’s central bankers seem to be making the firmest statements in favour of elevated rates, further strengthening sterling.
GBP/USD: the past year
EUR: All eyes on Germany
The euro performed strongly against the US dollar yesterday, while losing some value to the pound in back-and-forth trading.
Spain led the charge of European inflation data due today, with the Iberian nation’s headline rate falling by 0.4% month-on-month, much more than the expected 0.1%. German inflation is due out later this afternoon, data that carries a much higher potential to delight or spook markets.
USD: A test of resilience
The greenback’s slide carried over into the middle portion of this week, as the US dollar lost ground to the pound and the euro.
Quarterly GDP growth is out today, and investors will be watching closely to gauge any feedback from tightened fiscal policy. Markets are currently forecasting growth to hit 4.9% in Q3, well above the 2.1% seen in Q2.
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