Following the lower CPI numbers from Germany, EUR weakened over the course of the day and ultimately caused markets to raise the odds of a 25bps rate cut in October to 92%.
USD gained in the evening following Federal Chair Powell's comments that the Fed will lower interest rates over time and emphasised that the US economy remains on solid footing. The perception in the markets was that this was slightly hawkish and we saw 8bps worth of rate cuts knocked across the curve going into December 2025.
Business sentiment in the UK is at its most pessimistic since late 2022, according to the latest Institute of Directors poll. Business owners seemed concerned about looming tax hikes and workplace regulations expected to be brought in by the Labour government.
*Daily move - against G10 rates at 7:30am, 01.10.24
** Indicative rates - interbank rates at 7:30am, 01.10.24
Today's CPI numbers from Europe are likely to confirm what the recent readings from France, Spain and Germany have confirmed - that inflation is falling quicker than expected across the region. EUR will likely remain weak in this instance. Dovish comments from ECB members Rehn and Nagel could also add pressure to the single area currency.
Today's spotlight is on the US JOLTS and ISM manufacturing reports, which are crucial indicators of the economy's health and will reveal whether they support Fed Powell's statements from last night. Should the data from the US come in strong, we can expect USD to continue the gains from last night.
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