It was another busy day as traders digested the Fed’s latest rate cut, BOE’s decision to stand pat, better-than-expected U.S. data, and developing stories in the Middle East.
Which assets took advantage of Thursday’s headlines?
We’re discussing them below!
Headlines:
- New Zealand GDP contracted 0.2% in Q2 2024 (-0.4% forecast, previous reading downgraded from 0.2% to 0.1%)
- Australia’s August labor market data showed strength despite high interest rates
- Switzerland trade surplus shrank from 4.1B CHF to 3.9B CHF in August, the smallest since April, as exports (-1.2% m/m) fell faster than imports (-0.1% m/m)
- SECO continues to predict a 1.2% Swiss GDP growth in 2024, unchanged from June
- Euro Area current account surplus narrowed from €50.5B to €39.6B (€40.3 expected) in July
- BOE Kept Rates at 5.00% and Emphasized Its ”Gradual” Approach to Easing
- ECB member and Bundesbank president Joachim Nagel called for patience and said the central bank’s stance “must remain sufficiently tight for long enough” to achieve its inflation goal
- U.S. initial jobless claims eased from 231K to 219K (230K expected) in the week ending September 14
- Philadelphia Fed manufacturing index jumped from -7.0 to 1.7 (-0.8 expected) in September; Employment index rose from -5.7 to 10.7; Prices increased to 34.0, its highest since December 2022
- U.S. current account deficit widened from $241B to $267B ($259B expected) in Q2 2024 mostly due to an expanded goods deficit
- U.S. existing home sales eased from 3.96M to 3.86M (3.92M expected) in August
- U.S. Conference Board leading index improved from -0.6% to -0.2% (-0.3% expected) in August
- Japan national core CPI ticked higher from 2.7% to 2.8% y/y in Aug as expected
- PBOC kept 5-year and 1-year prime loan rates unchanged in September, dashing hopes for imminent monetary policy support
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
Thursday’s Asian session kicked off with a 50bps rate cut from the Fed, fueling interest in “risky” assets. U.S. stock futures ticked higher, and Bitcoin (BTC/USD) surged past $62,000. The Fed’s move initially supported the U.S. dollar, which led to a dip in spot gold before the Hong Kong market opened.
But the dollar lost momentum after Australia’s strong jobs data and a risk-on vibe took hold. U.S. 10-year yields and the Dollar Index slid, while WTI crude, gold, and U.S. stock futures gained through the European session.
Gold found further support from rising Middle East tensions linked to Hezbollah’s devices exploding, and crude oil prices got an extra lift from shrinking EIA oil inventories.
In the U.S. session, the dollar briefly bounced back on strong initial jobless claims and a solid Philly Fed report, with U.S. 10-year yields hitting 3.77% and gold pulling back from $2,590 highs.
However, the dollar’s gains were short-lived, as traders returned to riskier assets. Bitcoin ended the day near $63,000, WTI crude stayed around $71.00, and the Dow and S&P 500 closed at new record highs.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The U.S. dollar had a wild ride on Thursday, starting with broad gains following the Fed’s larger-than-expected rate cut, which was seen as positive for the U.S. economy.
However, the Greenback quickly reversed course after the Hong Kong market opened, as stronger-than-expected New Zealand GDP and Australian jobs data sparked a risk-friendly, anti-USD mood during the Asian session. The dollar saw a steady decline that persisted until the London session.
In Europe, traders were more supportive of the dollar, with positive U.S. mid-tier reports helping trigger a bullish pullback. The dollar briefly lost ground to the British pound after a not-so-dovish BOE decision, with GBP/USD hitting levels not seen since March 2022 before retreating.
By the end of the London session, the dollar faced renewed selling pressure, capping the day just above its intraday lows against most major counterparts.
The dollar’s biggest losses were against risk-sensitive currencies like the AUD, NZD, and GBP, but it maintained gains against JPY and CHF. Notably, USD/JPY, after being rejected twice at the 143.75 zone, extended its downswing to 142.55.
Upcoming Potential Catalysts on the Economic Calendar:
- Germany’s PPI reports at 6:00 am GMT
- U.K. retail sales data at 6:00 am GMT
- U.K. public borrowing at 6:00 am GMT
- BOE MPC member Catherine Mann to give a speech at 9:00 am GMT
- BOC Gov. Tiff Macklem to give a speech at 12:15 pm GMT
- Canada’s retail sales data at 12:30 pm GMT
- Euro Area consumer confidence at 2:00 pm GMT
- ECB President Lagarde to give a speech at 3:00 pm GMT
The British pound could see some volatility with the U.K. dropping retail sales and public borrowing data, plus a speech from BOE’s Catherine Mann.
Later, Bank of Canada Governor Macklem speaks right before Canada’s July retail sales report, which could show stronger numbers than June. Meanwhile, ECB President Lagarde will take the spotlight with a central banking speech in D.C.
Stay sharp with your GBP, CAD, and EUR trades, and watch for any shifts in overall market sentiment!
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