The week kicks off on a slightly positive note after last week's softer-than-expected US inflation data paved the way for a rate cut on Wednesday. Combined with signs of a rapidly deteriorating US jobs market, investors now expect the Federal Reserve (Fed) to begin a series of cuts this week.
The Australian dollar is showing limited movement on Tuesday. In the European session, AUD/USD is trading at 0.6482, down 0.01% on the day.
S&P 500 with Nasdaq almost retested Wednesday‘s lows – unlike Russell 2000, which refused to correct meaningfully Friday premarket. That was but one of the signs of what to expect – and all clients were ready as to what I expected to unfold, and what was the game plan.
Japan's Nikkei index hit a new milestone on Wednesday, crossing the 43,000 mark for the first time ever. The broader Topix index also reached a record high, following strong gains in Wall Street overnight and marking six straight days of growth.
Yesterday, US inflation data was mixed, but the market reaction was not. Core inflation in the US posted its strongest gains this year, and the yearly figure accelerated more than expected to 3.1% in July.
It has been a quiet start to the week for the major FX rates ahead of a busy schedule of G10 central bank meetings this week including the BoJ and Fed on Wednesday followed closely by the SNB, Riksbank and BoE on Thursday. Ahead of those policy updates the US dollar is continuing to consolidate at weaker levels against other major currencies with the dollar index trading just below the 104.00-level.
The sharp move higher in yields outside of US has been an important driver of US dollar weakness at the start of this year. The 10-year JGB yield hit a fresh year to date high overnight of 1.58% and has now risen by around 40 basis points year to date.
