Feds Warsh sends USD higher with interest rate talk

Good morning

To all UK readers, I hope you had a magnificent long weekend.  Can’t believe we’re in September already, I know I said last year that 2025 had gone absurdly quickly but 2026 feels like a sprint in comparison.  Schools should be going back this week so commuters who drive are likely to notice an increase in traffic on the roads, hopefully it means I get less email out of office bouncebacks when I send the daily report out.

The weather over the weekend was nowhere near as bad as forecast, yes we had some rain but there were many hot and sunny spells to enjoy.  Certainly enough decent weather for the England v Pakistan cricket test match to have enough play to finish, England once again winning by a decent margin of 194 runs which has led to the Pakistani head coach and seven players being sent home and replaced with a host of new cricketers, five of whom are uncapped.  The third and final test of the series starts next week.

If a team can change dramatically after two losses, I’d hate to be in the Spurs dressing room.  A loss at the weekend to Newcastle leaves Spurs languishing at the bottom of the league table, a horrendous state of affairs particularly given the massive spending so far this season.  The transfer deadline come this evening, there had been talk that Spurs would make at least one more big signing although if I were a player I’m not sure I’d be heading their way right now.  Onwards and upwards and all that!   Arsenal ground out a result against Villa yesterday, the sort you have to win if you’re going to win the title.  They are level on points at the top with Man City and Chelsea, and Hull are also up there after two decent wins.    

To the markets, and Feds Warsh sent the US dollar marching higher on Friday when he spoke at Jackson Hole, saying persistent inflation could well be enough for the Fed to raise interest rates later this month.  That would certainly risk the wrath of Trump who chose Warsh for his more dovish stance, however with the higher energy prices as a result of the US/Iran war I think the Fed could be left with little choice.  GBPUSD, which had been as high as 1.3650 last week, has dropped as low as 1.3525.  EURUSD has suffered as well, trading down from 1.1680 or so to 1.1575.  US inflation numbers are due on 11^th Sept, just a few days before the Fed’s rate announcement on 16^th September. 

That same USD strength took USDJPY to 160.20, just 65 pips from the July highs which will no doubt bring comments from Japanese officials but I’m not sure the US will have the same appetite for intervention as they had one month ago when they joined Japan in buying Yen which took USDJPY from 160.85 to 155.25.  The pair has been on an upward trend since that intervention.  GBPJPY did trade to the mid 217’s last week but is currently back to 216.50.

Meanwhile oil prices have risen again as news emerged over the weekend of renewed military hostilities between US and Iran, WTI and Brent are now $87.50 and $92.30, up some 10% from last week’s lows of $79.70 and $84.50 or so.

Looking ahead to this week, US employment numbers are likely to dominate the headlines with JOLTS today, ADP tomorrow, Challenger on Thursday and the main event, the nonfarm payrolls, on Friday.  There are still plenty of other numbers to keep us on our toes including US ISM PMI’s today, Aussie GDP and RBNZ rate announcement overnight.  RBNZ are expected to raise rates 25bps, that is pretty much priced in.  AUD and NZD have suffered on reports of the new US/Iran attacks, GBPNZD currently 2.2955 which is the highest we’ve seen for nearly two weeks, an odd bit of weakness for NZD given rates are likely to rise.  AUDNZD has risen to 1.2125, the highest that pair has been since early July.  GBPAUD currently 1.8935 still near its lows since late June but up from the 1.8850 lows last week.

The week also brings Canadian rate announcement which follows last weeks better than expected Canadian GDP numbers.  Those numbers weren’t enough to prevent CAD weakening against USD after Warsh spoke although USDCAD is now 1.3875, up a bit from pre-Warsh levels around 1.3855 but CAD has held its ground reasonably well.  GBPCAD is 1.8780, a few points off Monday’s lows but still well below last week’s highs around 1.8910.

Have a great day…

-  10.00 EU HICP

-  13.30 ECBs Nagel speaks

-  14.05 Feds Barr speaks

-  14.30 CAD S&P manufacturing PMI

-  15.00 US ISM manufacturing PMI, JOLTS

-  18.00 ECBs Vujcic speaks

-  23.45 NZ building permits

-  02.30 AUS GDP

-  03.00 RBNZ rate announcement

-  04.00 RBNZ press conference

Waiting for Warsh

Good morning

Well it was another pretty non-eventful day yesterday, USD tried to push a tiny bit higher against GBP and EUR but by the London close we were back to pretty much where we started the day.  There seems to be an increasing chance of a Fed rate rise next month although it seems more likely this a ‘one and done’ move so the ultimate impact on the US dollar may not be too significant.  Oil prices did tick a bit higher with WTI and Brent up to $83 and $88.00 although there are reports that oil is being shipped through SoH at an increasing rate, around half of pre-war levels.

Major currencies are once again broadly unchanged with GBP and EUR now 1.3585 and 1.1645 against USD, putting GBPEUR 1.1665.  GBP looks like it will end the week lower in the crosses, currently at 216.65, 1.8880, 2.2805 and 1.8820 against JPY, AUD, NZD and CAD. 

We will hear from Feds Warsh at Jackson Hole this afternoon, so far we’ve had little in the way of news from there but attention will be on Warsh given he prefers to keep his cards close to his chest.  We know Warsh would love to see rates lower but he’s joined the Fed at just the wrong time, just a month or so before the US attacked Iran which sent oil prices, and inflation, higher.  The Fed are in a very difficult spot, with an economy that looks pretty strong, inflation above target, but a worrying employment market. 

There has been plenty of talk recently of a Fed rate rise next month but  it is possible Warsh still tries to give a dovish outlook, perhaps he’ll say something along the lines of ‘need to see more incoming data before making a decision’.  It is also possible Warsh avoids any form of policy commentary.

Next week we have rate announcements from RBNZ and BoC, EU inflation numbers, Aussie trade balance and US ISM manufacturing.  We also have the various US employment releases through the week, concluding with the nonfarm payrolls on Friday.  The fear of a softer labour market is a key factor that has so far prevented Fed from raising rates.  If we see a positive headline next week I’d imagine bets on a US rate rise will increase, but if the headline or unemployment rate are considerably worse than expected it is possible the market will wonder if the Fed can hold out for another month or two.

We did get some cricket between England Pakistan yesterday, the conditions weren’t great for batting and England, having been made to bat first by Pakistan, managed 248/9 which doesn’t sound tremendous but actually isn’t so bad given they were 36/3 at one stage.  The match continues today, weather permitting.  Meanwhile rugby fans will have the second South Africa v New Zealand match to enjoy on Saturday afternoon, the Springboks desperate for revenge after their defeat by the All Blacks last weekend.  Expect a pretty bruising encounter.

Onto football with premier league action this evening with Crystal Palace hosting Man City who will be without both Savinho and Marmoush as Spurs have signed them both.  Just a few days to go now until the end of the transfer window and I think several teams will still make some pretty big signings. Spurs, this seasons big spenders, welcome Newcastle on Saturday.  I had Newcastle down as one of the teams who will struggle this season but in fact they were unlucky not to come away with three points in their opening match against Liverpool.  Chelsea v Brighton could be a great match on Sunday, one to watch if my gardening gets halted for bad weather, and I’ll be very interested to see if Man Utd get turned over by Ipswich, another newly promoted side, after Man Utd’s defeat to Hull in the opening match. 

It is a UK bank holiday on Monday so there will be no report hitting your inboxes until Tuesday which rather incredibly will be September!  This is the last bank holiday until Christmas Day!  Crikey, with rain, the evenings getting darker, and no bank holidays, it would be easy to be full of doom and gloom.  However we must remember life is not at all bad compared to some situations.  Just take a look at the incredible but distressing footage of horrendous flash floods that hit Nepal and Tibet which we know has killed nearly 500 people, a toll that is likely to rise given the number of missing people. 

The speed and power of the flood serves as a reminder of just how quickly and suddenly life can change.   I don’t like to end the week on a sad note so instead let’s just think over the long weekend of being better people, make someone else laugh or tell someone how special they are to you.  You just never know whether you’ll get another chance.

Have a great day and a great weekend as and when it comes.

-  10.00 EU consumer confidence

-  13.30 CAD GDP

-  14.45 US Chicago PMI

-  15.00 Feds Warsh speaks

-  15.00 US Michigan sentiment

-  16.55 ECBs Schnabel speaks

USD up on renewed Fed rate rise thinking...will Jackson Hole give us any clues

Good morning

We saw a smidge of US dollar strength yesterday which came after a Core PCE reading that was bang in line with expectations and a an unchanged Q2 GDP release.  GBPUSD traded below 1.3600 for the first time in a week or so.  EURUSD slipped to the mid 1.16’s, USDJPY ticked up to 159.40, all in all nothing to really write home about but does keep the pressure on Fed officials to consider raising rates at the next Fed meeting.  Jackson Hole begins today and I’m looking forward to hearing what Fed officials have to say regarding policy decisions.  Warsh is speaking tomorrow afternoon.

While we are looking at a possible FOMC rate rise next month, it is worth noting that both RBA and RBNZ could be on track to increase their own interest rates next month.  RBNZ is up first, a 25bps lift from 2.5% to 2.75% is on the cards with markets looking for a lift to 3% in the coming months.  GBPAUD currently 1.8920, GBPNZD 2.2855, both pairs towards the lower end of recent ranges, reflecting this renewed rate rise thinking.  AUDNZD still firm at 1.2080 after the Aussie CPI data earlier in the week.

The ongoing tensions in the Middle East that has driven energy prices higher is a major factor behind higher inflation and this new round of central bank rate rise thinking.  There have been talks held between Iran and Oman over the Strait of Hormuz which brings a degree of optimism one day, only for optimism to be dented some time later.  Iran’s insistence that any deal with Oman includes the US backing down from their blockade is the stumbling block but from Iran’s point of view, if SoH is open and operating then they have very little negotiating power. 

There has been plenty of speculation over the head of CIA’s visit to Moscow.  There is some thinking he was there to warn Putin against a strike on any NATO country after intel reports suggested some sort of limited assault was in the pipeline.   Russia is also reported to be preparing for an escalation in Ukraine amid talk and peace talks have ground to a halt.  There is even a suggestion that Russia will have to resort to using nuclear weapons, something that seems far more possible now than it did when this issue was raised by Putin almost four years ago.  Worrying times.

No great surprise that oil prices had a bit of a spike yesterday, WTI and Brent trading up to $83.25 and $88.50 respectively although as I type both have lost ground, now around $81 and $85.75.  With no sign of any concrete peace plans in the Middle East and Russia perhaps increasing military strikes on Ukraine I don’t really understand why oil prices are not higher.  I think they are pricing in far too much hope and optimism for some sort of peace deal.

In sport, Spurs managed a convincing victory over Charlton in the League Cup last night.  Many will point out that Charlton are in the Championship, but I’ve seen Spurs lose to lower teams and this is an encouraging result.  The fact new signing Savio scored on his debut was a little bonus.  Mind you, Spurs have drawn Liverpool in the next round which will obviously be a much tougher test.  Perhaps I’ll have to resort to the old ‘concentrating on the league’ excuse far too early in the season. 

England’s cricketers take on Pakistan in the second test match of the series today.  Quite how much play we see remains to be seen.  The match is at Lords, not a million miles from me, we had a decent sprinkling of rain overnight and more is forecast today and over the weekend.  England are firm favourites but 5-1 on the draw doesn’t look too stupid if play does get stopped for weather.

Finally, possibly the wrong time of year to be looking at this now the sun is going and the clouds are returning, but I saw on the news that plug-in DIY solar panels will be available to purchase from today.  They are obviously not as powerful as a professionally installed system but they are cheaper, with a pair of panels costing around £1,000 although this is expected to fall over time as competition grows.  The big question is how much they could save.  It could take some ten years to recoup the cost but given the ever-increasing cost of domestic energy it could be less time than that.  My bills are above the average and my roof isn’t really the right shape for proper panels, perhaps this will be an interesting and lower cost test to see the impact solar power could have on my bills.   Watch this space.

Have a great day…

-  12.30 ECB minutes

-  13.30 US initial jobless claims

-  00.30 Japan Tokyo CPI