Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Euro boosted as ECB flags “sticky” concerns
The euro was mostly higher overnight even after the European Central Bank cut interest rates for third time this year.
The ECB cut its deposit rate by 25 bps to 3.50% and cut the key refinancing rate by 60bps to 3.65%.
However, ECB president Christine Lagarde said the bank remains worried about “sticky” services inflation and market went from pricing 63bps of ECB cuts by the end of the year to just 39bps.
The EUR/USD gained 0.5%, while EUR/SGD climbed 0.2% as it extended gains from 18-month highs. The euro was weaker versus the Australian and NZ dollars, however.
USD weaker ahead of consumer sentiment
Otherwise, the US dollar was mostly weaker overnight as US shares extended a recent recovery and markets moved into more risk-sensitive FX markets.
The AUD/USD and NZD/USD both gained 0.8%.
In Asia, the USD/SGD and USD/CNH both fell 0.2%.
Looking forward, the preliminary reading of the University of Michigan consumer sentiment looks likely to increase slightly from 67.9 in August to 68.3 in September.
The survey interview period saw a sustained reduction in energy costs.
On the medium-term outlook for the USD, relatively higher interest rates and the potential for risk aversion ahead of the US election means the greenback can recover from near 14-month lows.
UK’s inflation expectations key for GBP strength
Looking to the upcoming UK consumer expectations for inflation. The GBP has been mostly stronger.
Inflation expectations are reported for the following time periods: i) the current rate (which is predicted to decrease further from 5.5% in Q2 due to the decline in actual inflation); ii) the year ahead (at 2.8%); iii) the two years ahead (at 2.6%); and iv) the five years ahead (at 3.1%).
This poll has a lot of other intriguing questions, such as whether an interest rate increase, decrease, or stay the same is the best course, but the main focus will be on inflation forecasts.
The GBP showed some strength overnight, with GBP/USD rebounding from the 1.3000 level, helped by the recovery in EUR/USD.
Aussie back near recent highs in Europe
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 9 – 14 September
All times AEST
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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