The DXY Index depreciated by 0.4% to 100.56 overnight, holding below 101 for the ninth session. In the first four days of the week, except for the JPY (-0.7%), the currencies in the DXY basket appreciated, led by the CAD (+0.8%), GBP (+0.7%), CHF (+0.5%), and EUR (+0.1%). US stock indices rallied on better-than-expected US data. The US Commerce Department updated its GDP estimates, which cited faster growth in 2021, 2022, and early 2023. It also erased the technical recession in 1H22; the quarterly contraction in 2Q22 was revised to an expansion. The Dow, S&P 500, and Nasdaq Composite indices rose by 0.6%, 0.4%, and 0.6%, respectively. S&P closed at a new record high of 5745.
The US Treasury 10Y yield firmed this week by 5.5 bps to 3.796% ahead of today’s US PCE deflators. Consensus sees headline inflation slowing to 2.3% YoY (0.1% MoM) in August from 2.5% YoY (0.2% MoM) in July. However, core inflation is seen unchanged at 0.2% MoM, lifting it in YoY terms to 2.7% from 2.6%. Last week, the Fed projected PCE headline and core inflation to average 2.3% and 2.6%, respectively, in 4Q24. However, the futures market is paying attention to next Friday’s US monthly jobs data for a possible back-to-back 50 bps cut at the November FOMC meeting. Consensus is looking for nonfarm payrolls to moderate slightly to 140k in September from 142k in August. The unemployment rate is expected to stay unchanged at 4.2%, which the Fed sees rising to 4.4% in the October-December quarter.
The Swiss National Bank’s third interest rate cut did not push USD/CHF out of its month-long range between 0.84 and 0.8550. SNB lowered the policy rate by 25 bps to 1.00% and kept the door open for more easing in the coming quarters on its new forecast for inflation to decelerate to 0.6% in 2025 from 1.2% in 2024. In June, SNB projected a modest slowdown in inflation to 1.1% from 1.3% based on its assumption of a stable 1.25% policy rate over the forecast horizon. SNB signalled its readiness to intervene in currency markets, reinforcing its concerns about the CHF’s strength as a source of significant disinflation and pressure for Swiss industries amid weak demand from Europe. SNB likely does not want EUR/CHF to post a new year’s low below 0.93.
CNY appreciated 0.5% (CNH did better with a 1.0% again) overnight on China’s stimulus hopes. Despite doubts that the stimulus would reverse China’s slowdown, the Shanghai Composite Index surged 9.7%, its best weekly rise in almost 16 years, to a three-month high of 3001. Offshore USD/CNH fell from 7.10 to 6.98, closing below 7.00 for the first time since May 2023. Onshore USD/CNY lagged at 7.01. Conversely, USD/JPY rose to 145 from 140 in the second half of this month ahead of today’s Liberal Democratic Party (LDP) party leadership elections. A run-off is expected ,with none of the top three candidates expected to secure a majority. JPY bulls would not welcome a win by Minister of State for Economic Security Takaichi Sanae or former Secretary-General Shigeru Ishiba because of their critical views on the Bank of Japan’s normalization policy. They would favour Shinjiro Koizumi, the son of former popular Prime Minister Junichiro Koizumi, who would respect the BOJ’s independence and call for a snap election if elected.
Quote of the day
“The only way to have a friend is to be one.”
Ralph Waldo Emerson
September 27 in history
In 1998, the Google internet search engine retroactively claimed this date as its birthday.
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