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The DXY Index consolidated in a 101.55-101.80 range after a three-day rally from 100.55 to 101.80. US stock and bond markets were closed on Monday for the Labor Day holiday. Still, the S&P and Nasdaq Composite futures are pointing to a positive open today after being in negative territory for most of Monday. Today, consensus sees the US ISM Manufacturing PMI improving to 47.5 in August from 46.8 in July. However, markets see Friday’s jobs report as the primary support for the anticipated 25 bps rate cut at the FOMC meeting on September 18. With markets also weighing this potential against the other rate cuts expected from other central banks, markets will likely fluctuate more after the past two months of USD selling.
EUR/USD appreciated by 0.2% to 1.1072, brushing aside the victory of Germany’s far-right Alternative for Germany (AfD) in the eastern state of Thuringia. The euro had depreciated in the last three days of the previous week, dropping to 1.1048 from 1.1184, amid expectations of a second interest rate cut at the European Central Bank meeting on September 12. Following the Eurozone CPI inflation decline to 2.2% YoY in August, down from 2.6% in July, the OIS market has priced in a 94% chance of a 25 bps cut in the deposit facility rate to 3.50%. Last week, ECB Chief Economist Philip Lane cautioned that the mission to return to the 2% target was “not yet secure,” signalling concerns with the market pricing in a neutral rate of 2.00-2.50% by mid-2025.
USD/CHF recovered to 0.8520 after touching the 0.84 low on August 29, a level last seen at the start of the year. On August 30, Swiss National Bank President Thomas Jordan said Switzerland’s moderate growth outlook, along with gains in the CHF, would influence the central bank’s inflation assessment. Jordan also highlighted that the strength of the CHF poses a challenge to the Swiss industry, particularly given the weak demand from Europe. In June, SNB forecasted inflation at 1% or the mid-point of its 1-3% target range through 1Q27. As a result, the market will be closely watching today’s CPI and GDP data for any downside surprises. The consensus is that CPI inflation declined to 1.2% YoY in August from 1.3% in July and that GDP growth improved to 1.5% YoY in 2Q24 from 0.6% in 1Q24. The OIS market has priced in a 126% probability of a third 25 bps rate cut to 1.00% at the SNB meeting on September 26.
Quote of the day
”A genuine leader is not a searcher for consensus but a molder of consensus.”
Martin Luther King Jr.
3 September in history
Dow Jones Industrial Average reached an all-time high of 381.17, to be shortly followed by the Crash of 1929.
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