GBP broadly rose after service and manufacturing PMIs topped estimates. EUR was hit on the back by mixed PMI numbers as well as by wage data showing a slowdown in Q2 from Q1. US PMIs came in marginally better than expected and Fed speak from Jeffrey Schmid saw USD treasury yields finishing higher across the board for the first time in 5 days. At the start of the day, GBPUSD and EURUSD were at their highest levels since July 2023.
*Daily move - against G10 rates at 7:30am, 23.08.24
** Indicative rates - interbank rates at 7:30am, 23.08.24
The question today from Fed Powell’s speech will be whether he can “outdove” the already dovish pricing on US rates this week. Markets are currently pricing in 1% worth of rate cuts by the end of the year. If Powell suggests rate cuts at a moderate pace, then markets could easily price in only 0.75% worth of rate cuts over the same period, which would be USD positive.
As mentioned earlier this week, USD was looking oversold, so a less-than-expected dovish Powell will likely see bargain hunters take advantage of the recent weakness of USD and see GBPUSD and EURUSD drop off recent highs.
The better PMI numbers from the UK over the EU, saw GBPEUR climb higher yesterday. Any kind of hawkish or less-than-dovish tones in Governor Bailey’s speech today will likely exacerbate a higher move.
JPY is starting the day strong after Governor Ueda left the door open for a future rate hike by the BoJ.
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