The anticipated reduction in the Federal Reserve’s overnight rates was actually a selloff in the US bonds and a rally in the dollar, which was quite universal.
Apparently, markets were now primed for an even more dovish result, and the solitary vote of committee members in favor of a jumbo 50bp cut was not satisfying them; therefore, stocks rebounded. The dollar has recovered, and the trading range that has existed since the beginning of summer appears to have become firmly entrenched so far.
This week, economic reports seem relatively light; it will predominantly focus on the publication of the PMI indices of business activity globally on Tuesday. Especially in Europe, primary indicators of growth in the advanced economies are.
On top of that, it is keeping a close watch on the US bond market, where medium- and long-term rates appear to be turning a blind eye to the Federal Reserve cut in the present and are persistently staying at very high levels.
Enrique Díaz-Álvarez further said, “Bonds, however, seemed to be disappointed by the fact that only the most recent Trump appointee to the board voted for a 50bp cut, and by the wide dispersion of expectations evident in the ‘dots plot,’ which suggests deep divisions about whether to prioritize above-target inflation or the weakening labor market. This week’s August PCE inflation report, out Thursday, will be the main focus of attention for the US dollar.”
GBP
The Bank of England persisted in a wait-and-watch stance. The UK labor market reported last week that inflation, which was forecasted at an unexpected rate of around 4 percent, as compared to 3 percent in both the headline and core, was in line with a stagflationary environment where the central bank finds it hard to justify further reductions.
“While survey measures suggest robust expansion of employment, tax data on payrolled employees showed another small monthly contraction. No such ambiguity was on display in the government budget numbers for August, which showed that expenditure and the deficit continue to outpace all predictions. All in all, we think that the downside risks to the Pound are finely balanced by support from high interest rates and cheap valuation by most measures,” Enrique Díaz-Álvarez, Chief Economist at Ebury – the most popular payment specialist that helps small- and medium-sized businesses (SMEs) to operate and expand overseas.
EUR
Following the reduction of the rates by the ECB, which looks to be more like the bottom of the cycle at 2 percent, the Eurozone appears to have fallen out of the newsflow that runs currency markets.
The economic growth remains slow, and only adequately high to keep the Eurozone out of recession due to the remaining robust employment and services expenditure. The PMI indices on Tuesday will provide a new indication of the Eurozone economy.
USD
Last week, the anticipated 25bp Federal Reserve cut split markets in mixed reactions. Stocks preferred to see it in a bullish way as it appears to interpret all the single bits of news recently and they recovered to new highs.
