EUR/USD Steadies Amid ECB Wait, Fed Rate Cut Expectations Rising

The EUR/USD pair stayed steady and traded near 1.1700[1] in Thursday’s Asian session, pausing after two days of declines. Traders are thought to be on their toes ahead of the European Central Bank’ (ECB) policy decision[2] later in the day. It is expected that the ECB will keep the Main Refinancing Rate at 2.15%[3] during the second meeting in September. Market reports[4] indicate that the move is made against a background of uncertainties in trade and eurozone inflation being near target in three consecutive months. It is assumed that because there are no surprises anticipated, the market participants can be calm until the ECB[5] gives more insight on its economic forecast and further monetary policy positioning.

It is assumed that the euro can be supported against the US dollar because the traders anticipate the Federal Reserve[6] to cut interest rates in September. Market analysts[7] point out that lower-than-expected US Producer Price Index has contributed to pressure on the greenback, which calls into question its strength and gives the EUR/USD pair an opportunity to regain.

The market commentators note that traders are awaiting the August US Consumer Price Index (CPI)[8] which will be announced later today and it will likely heighten expectations of a larger 50-basis-point interest rate cut by the Federal Reserve next week. It is estimated that the headline CPI[9] is projected to increase by 2.9% annually in August, and the core CPI is projected to increase by 3.1% in the same year. It is reported that the markets are now pricing in a rate cut of 25 basis points at the Fed meeting in September and the possibility of an even greater reduction of 50 bps is now almost 12%, as seen on the CME FedWatch tool[10].

The Bureau of Labour Statistics[11] indicated that US producer price inflation improved in August. Market reports point out that the Producer Price Index (PPI)[12] rose 2.6% year-by-year falling short of the expected 3.3% by the market given 3.3% in July. Investors note that monthly-basis prices fell by 0.1% in August, after a revised 0.7% rise in July, compared with the first-time reported 0.9%. Market commentators point out that the weaker than expected data points to a softening of price pressures that may well inform Federal Reserve[13] policy debate over the next several months.

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GBP/USD Remains Steady Amid Housing Concerns and Fed Rate Outlook

The GBP/USD pair moved slightly in the second day and traded around 1.3520[14] in Thursday's Asian session. It is observed that the pair is stable for now, even though the UK RICS Housing Price Balance[15] dropped to -19% in August, the lowest since nearly two years ago, as compared to -13% in July. Market reports[16] point out that the data which is marred by a sluggish (moving or operating more slowly than usual and with less energy or power) buyer demand indicates that the house prices remain under pressure. It is reported that the markets had anticipated a softening decline to -10 but the greater fall points to the difficulty faced by the housing market and the currency pair is seen trading within small ranges.

Market commentators[17] note that the Pound might be stable as traders anticipate the Bank of England's (BoE) September policy meeting where the interest rates are projected to remain at 4%. Reports[18] point out that focus has now shifted towards the UK GDP that is set to be released on Friday and is expected to record zero growth following the 0.4% growth in June. Reports[19] also anticipate possible indications of slower economic momentum to contribute to market conjecture that the BoE will lower rates again by the end of the year. Some analysts[20] point out that markets are keeping a keen eye as slackening activity poses a question of time that the central bank can maintain its current position.

Market commentators note the US Dollar to be under pressure with traders expecting a Federal Reserve[21] rate cut this September. The CME FedWatch tool[22] indicated that markets have completely factored in a 25 basis point cut, which indicates increasing confidence over a policy shift. Market commentators note that the move is after the weaker-than-expected US Producer Price Index (PPI)[23] figures that compounded expectations that the Fed will relax monetary policy to stimulate growth in the face of a cooling inflation trend.

The traders are said to have turned their eyes on the August US Consumer Price Index (CPI)[24] which will be reported later today, as it has the potential to raise expectations of an additional 50-basis-point rate cut by the Fed next week. Market analysts observe that the CPI headline will be up by 2.9% on a year-on-year basis in August with the core CPI increased by 3.1% on a year-on-year basis in the same month. These figures are expected by some analysts to play a critical role in influencing market expectations of future Fed policy decisions.

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NZD/USD Strengthens Amid Fed Easing Hopes and Cautious RBNZ Stance

The NZD/USD pair remained stronger and traded around 0.5945[25] in Thursday's Asian session since the New Zealand Dollar strengthened against the US Dollar. The move is believed to come at a time when markets are growing progressively anticipating the Federal Reserve[26] to cut interest rates three times by the end of the year. Market reports[27] note that traders are now cantering their attention on the upcoming US Consumer Price Index (CPI) statistics of August, which will be released later today, as this would give new hints regarding the policy outlook of the Fed.

Some analysts expect US Producer Prices[28] to have declined by surprise to the extent that the Federal Reserve is now more likely to cut rates next week, and may make three cuts in total this year. It is also anticipated that the softer data has increased the expectation of the easing of monetary policy[29], which may impose near-term selling pressure on the US dollar as traders will have to change their positions. It has been reported that markets are now closely watching the Fed[30].

Certain analysts indicate that markets are anticipating the US Federal Reserve[31] to start to cut policy in September with some analysts projecting up to three cuts this year. Rodrigo Catril[32], a currency strategist at National Australia Bank, observed positioning undertakes this view. Market reports note that Barclays[33] analysts also anticipate the three consecutive 25-basis-point reductions as the Fed is likely to cut rates in September, October and December on its way to a more accommodative policy.

RBNZ Governor Christian Hawkesby[34] noted on Thursday that the Official Cash Rate of New Zealand will still hit 2.5% at the end of the year. He observed that the timing and the rate of any cut in the rates shall be informed by the most recent economic information and the rate of recovery in the nation. Hawkesby noted the conservative nature of the central bank by stating that any further decisions will always be pegged to the economic factors and the robustness of the recovery.

It is believed the Reserve Bank of New Zealand[35] started lowering interest rates again in August after maintaining the same in July because the patchy recovery lessened the concern of increasing inflation. Market commentators[36] note that policymakers are sensitive to the knock-on effects of US tariffs, which may drag on global growth and local business. The expectation is that in case of economic indications of instability in New Zealand the Kiwi dollar[37] can see more pressure against the US dollar, which points to a reserved attitude of the central bank in a weak global economic landscape.

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USD/CAD Gains Amid Fed Rate Cut Hopes, BoC Easing Pressure

The USD/CAD pair continued making gains in the third consecutive session and traded around 1.3870[38] in Thursday's Asian session. However, the trend is expected to be capped in the near future since the US Dollar[39] is under fresh pressure. The Federal Reserve[40] is believed to have already priced in a September interest rate cut because of weaker-than-anticipated US Producer Price Index (PPI) data. Market reports[41] suggest this lower inflation rate has contributed to the anticipation of a monetary easing, which has kept the mood cautious and limited the potential momentum of the pair in the near future.

Market reports point out that the markets are now projecting a 25 basis point decrease of interest rates by the Federal Reserve at its September meeting, and chances of a 50 basis point reduction are rising to almost 12%, which the CME FedWatch tool predicted. Market experts indicate new figures by the US Bureau of Labour Statistics[42] indicated that the producer price inflation had dropped to 2.6% annually in August, compared to 3.3% in July and lower than the estimates of 3.3%. In August, producer prices declined by 0.1% on a monthly basis, revising a 0.7% increase in July. The figures are believed to have solidified market expectations of additional money easing by the Fed[43].

Market analysts observe that traders are currently speculating over the US August Consumer Price Index (CPI)[44] announcement released today that may provide optimism towards a larger 50-basis-point reduction in Fed rates next week. CPI is believed to increase by 2.9% on a yearly basis, whereas core CPI is likely to increase by 3.1% on a yearly basis in August.

Official reports state that the USD/CAD pair is gaining momentum because the Canadian Dollar is pressured by increasing expectations that the Bank of Canada (BoC)[45] will restart lowering the interest rates this month. It is believed that the latest economic figures have contributed to the outlook with the unemployment rate increasing to 7.1%[46] in August as compared to 6.9% in July. The lower numbers are noted by market commentators to indicate that US tariffs have burdened hiring impetus and reduced the activity in central industries, making markets expect additional monetary facilitation by the Canadian central bank.

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