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Markets await SNB rate decision, Powell and Lagarde

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After witnessing a solid turnaround in U.S. markets on Wednesday, the Dollar pauses its recovery and remains in a consolidative mode heading into the European trading on Thursday.

Traders turn cautious and refrain from placing fresh bets on the USD before the release of the pre-recorded speech by Federal Reserve Chairman Jerome Powell. A host of other Fed officials are also due to make their scheduled appearances along with Powell, with their respective speeches trickling in later in the day.

The Fed commentary will be critical to gauging the size of the next rate cut in November. Markets are already pricing in a 61% chance of a 50 basis points (bps) rate reduction, according to the CME Group’s Fed WatchTool.

Fed Governor Adriana Kugler said late Wednesday that she “strongly supported” the Fed’s decision to cut the interest rates by a half point last week. Kugler added that she “will support additional rate cuts going forward.”

Apart from the Fedspeak, investors will also look to the mid-impact US Durable Goods Orders and the Jobless Claims data for fresh trading directives.

The Dollar also stalls its previous upswing, as risk sentiment turns positive, courtesy of the renewed optimism surrounding China’s stimulus measures.

Bloomberg News and Reuters reported earlier that China is considering injecting capital worth CNY1 trln ($142 bln) into top state-owned banks, in a further effort to shore up the economy.

Additionally, China’s Politburo, the country’s top leadership, held a meeting on Thursday and affirmed that they will lower the Reserve Requirement Ratio (RRR) and implement a forceful interest rate cut.

The recovery in risk sentiment is driving Asian indices closer to two-year highs, with the S&P 500 futures, the risk barometer, rising 0.60% so far.

Risk reset

Most G10 currencies benefited from risk reset and the faltering Dollar rebound.

The higher-yielding Australian Dollar is seen as the best performer, driving AUDUSD back toward the highest level since February 2023. The Aussie capitalises on fresh Chinese stimulus measures, last seen trading at 0.6860.

USDJPY rebounded firmly before entering a consolidation just below 145.00. The pair remains underpinned by the risk-on market mood, which weighs on the safe-haven Japanese Yen. The local currency ignored the Bank of Japan’s (BoJ) July meeting Minutes.

USDCAD is posting small losses and retreats toward 1.3450, despite the latest leg down in oil prices. The black gold plunged 2% on Wednesday, as supply concerns from the shutdown of the Libyan oilfield eased. WTI is currently shedding 1.45% on the day to trade near $69.

USDCHF is trading sideways at around 0.8500, awaiting the Swiss National Bank’s (SNB) monetary policy assessment for fresh cues.

GBPUSD is holding the bounce near 1.3350, supported by a better market mood and monetary policy divergence between the Fed and the Bank of England. BoE policymaker Megan Greene said on Wednesday that a “cautious, steady-as-she-goes approach to monetary policy easing is appropriate.”

EURUSD is testing 1.1150 once again, attempting a tepid recovery in the lead-up to speeches from European Central Bank President Christine Lagarde and Fed Chair Powell. Lagarde is due to deliver opening remarks at the European Systemic Risk Board Annual Conference at 13:30 GMT.

Gold is trading listlessly just below the record high of $2,671. Overbought conditions on Gold’s daily chart point to a potential corrective decline in the near term.

(Source: OANDA)