Yesterday really was manic Monday with markets continuing to sell off aggressively on fears that we could be in the midst of a global recession. Interest rate pricing in the US went from expecting 1% worth of rate cuts by year-end to 1.4%. This was on expectations that the Fed would have to act aggressively to stave off a recession in the US. USD sold off fairly aggressively with EURUSD hitting 8-month highs and the USD index also hitting 8-month lows. GBP had a tough day on the basis of markets being extremely risk-averse and GBPEUR hit lows last seen back in May.
*Daily move - against G10 rates at 7:30am, 06.08.24
** Indicative rates - interbank rates at 7:30am, 06.08.24
Markets are somewhat calmer this morning, with Asian equities all rebounding and erasing much of yesterday's losses. Interest rate expectations have also relaxed, as markets are back to pricing in 1% worth of rate cuts by the Fed this year. Given the lack of economic data today, risk sentiment will likely take precedence and we will likely see partial reversals of the moves from the day before.
The Reserve Bank of Australia elected to hold rates at 4.35% this morning but were more hawkish in their outlook given that their inflation forecasts were not leaning towards rate cuts. AUD is marginally higher across the board as a result.
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