The EUR/GBP cross loses its recovery momentum near 0.8445 during the early European session on Wednesday. The Pound Sterling (GBP) edges higher after the UK inflation data. The attention will shift to the Eurozone Harmonized Index of Consumer Prices (HICP) data, wishes to you later in the day. 

Data released by the Office for National Statistics showed on Wednesday that the UK CPI rose at an annual pace of 2.2% in August. The figure was in line with the market consensus and the previous reading of 2.2%. Meanwhile, core CPI, excluding volatile food and energy items, climbed 3.6% YoY in August versus 3.3% in July, hotter than the 3.5% expected. The GBP attracts some buyers in an immediate reaction to the UK CPI inflation data. 

The Bank of England (BoE) interest rate decision will be in the spotlight on Thursday. The UK central bank is anticipated to keep rates on hold before adopting a more aggressive stance from November. The odds of another 25 basis points (bps) rate cut in September increased but remain relatively low nearly 35%, according to LSEG data.

On the Euro front, the European Central Bank (ECB) Governing Council member Martins Kazaks said on Monday that the central bank will ease monetary policy further, though it shouldn’t do so too hastily due to lingering inflation risks. Less dovish interest rate guidance from European Central Bank (ECB) officials might help limit the Euro’s losses against the GBP.

The Eurozone HICP inflation might offer some hints about the inflation trajectory in the Eurozone and influence the ECB about the next move. The HICP is estimated to show an increase of 2.2% YoY in August, while the core HICP is forecasted to show a rise of 2.8% in the same period.

Source: FXSTREET

Canada August CPI 

US Vice President Kamala Harris understands natural gas prices will rise if fracking is banned, industry executives said on Tuesday, explaining their confidence that the Democratic candidate will not ban the production method if she becomes president.

Fracking, a major industry in battleground state Pennsylvania, has become a big issue in the presidential campaign. Harris opposed fracking as a US senator from California, but now, she says she would not ban it on federal lands as president.

"I think she is changing her views," Baker Hughes oil field services chief executive officer Lorenzo Simonelli said on the sidelines of the GasTech conference in Houston, when asked about Harris.

A spokesperson for Harris said she would not ban fracking, and referred to her comments in a recent debate where she said: "I was the tie-breaking vote on the Inflation Reduction Act, which opened new leases for fracking. My position is that we have got to invest in diverse sources of energy, so we reduce our reliance on foreign oil."

Harris' Republican rival, former president Donald Trump, supports fracking and says he believes Harris would seek to ban it.

The head of the largest US liquefied natural gas (LNG) exporter, in a separate conversation at GasTech, said Harris had to pivot to being more open to fracking, because natural gas prices would be much higher without it.

Cheniere Energy chief executive officer (CEO) Jack Fusco, whose Sabine Pass facility in Louisiana is the largest US LNG export plant, said he trusts Harris' support of fracking unless proven otherwise, and wants cooler heads to prevail on the energy transition debate.

Woodside CEO Meg O’Neill, whose Australian energy company is buying US LNG plant developer Tellurian, voiced the same rationale.

"If you stop fracking in the US, it will be devastating for the economy," O’Neill said. "I suspect the statements she made earlier were made without full understanding of the benefit and potential consequences."

Harris is locked in a tight race with Trump, and both are campaigning hard in Pennsylvania, one of the nation’s largest producers of natural gas.

Several executives at the conference also called on the Biden administration to make it easier for US companies to export LNG. The White House in January paused new LNG permits to consider the environmental impact.

"You gotta stop this crazy LNG pause from going forward," said ConocoPhillips CEO Ryan Lance. A debate over whether one is pro or against fracking "is not the right question", he added.

Source: Theedgemarkets

BoE will announce its rate decision on Thursday

The Bank of England is joining the chorus of the central bank meetings on Thursday. While the market will be digesting the first Fed rate cut since March 2020, Governor Bailey et al will announce their rate decision, after a meeting that does not feature the publication of quarterly projections and a press conference.

UK data flow is not conducive to another rate cut

Since the August 1 BoE rate cut, the data flow has been rather positive and has resulted in a significant decrease in the September rate cut expectations. Specifically, PMI surveys continue to point to underlying strength in the economy while the industrial sector continues to recover. Similarly, the labour market remains relatively tight as observed by the satisfactory growth in average earnings. Consumer spending remains under the weather even though housing prices have comfortably returned to experiencing positive yearly changes.

But August CPI and a more aggressive Fed rate cut could prove decisive

Therefore, economists are overwhelmingly expecting an uneventful gathering. That could potentially change though if:

(1) the Fed actually opts for a more aggressive start to its monetary policy easing cycle than originally anticipated. The market is currently pricing in 63% probability of a 50bps Fed rate cut on Wednesday following last week’s weaker producer and import prices indices, and a WSJ report that a 50bps move is being considered. And,

(2) Wednesday’s August CPI report shows aggressively weakening inflation pressures. The market is looking for an unchanged 2.2% annual growth in headline CPI figure, but the core indicator, which excluded energy and food prices, could accelerate to 3.5%. A significant downside surprise, partly on the back of lower oil prices in August, could put pressure on the BoE to act sooner rather than later. The market is acknowledging that there is a reasonable chance of a rate cut surprise since it is currently pricing a 37% probability for a 25bps move.

Uneventful meeting expected but voting pattern matters

Barring a major surprise, expectations for an unexciting meeting will most likely be confirmed as the BoE’s chief economist is expected to propose rates to be kept stable. The focus will then turn to the November meeting that includes the critical quarterly projections and the usual press conference.

A total of 50bps rate cut is currently priced in with the BoE seen announcing 25bps cuts in both November and December, thus adopting a slower pace compared to the Fed’s 120bps of easing currently anticipated.

The market will also be interested in Thursday’s voting pattern. The August decision was reached by the slimmest possible majority, and it would be important to see if the two members, Dhingra and Ramsden, that voted for a rate cut in June, continue to push for further easing.

Pound could benefit from a balanced meeting

Despite the overall negative newsflow for the eurozone and the evident divergence in the economic outlook, the pound has been failing to materially benefit against the euro. Going into the BoE meeting, market sentiment will be clearly affected by the Wednesday Fed meeting.

Assuming nothing groundbreaking comes from the other side of the pond, a unanimous BoE decision to keep rate unchanged and an overall balanced tone at the press statement could help euro/pound finally break below the 0.8401 and make a move towards the 0.8339 level.

On the flip side, a 50bps rate cut by the Fed could force the BoE to turn more dovish than widely expected, potentially leading to a small number of doves voting in favour of a BoE rate cut. In this case, euro/pound bulls will probably have the chance to target the 0.8487 level and recoup part of their summer losses.

The retail investor-exclusive 10-year and 20-year Korea Treasury Bonds (KTBs) have failed to meet the minimum subscription for the fourth consecutive month, strained by an overall downtrend in bond yields amid expectations of monetary easing by the central banks of the United States and Korea, according to market watchers Wednesday.

Some call for the addition of five-year bond products to the portfolio, coupled with an outright exemption of a financial income tax of 15.4 percent — an already-significant tax break from the previous rate of up to 50 percent.

However, the finance ministry — the issuer of the bonds — opposes the suggestion, since the shorter-duration products will fuel speculation, undermining the policy priority to bolster the post-retirement income source for bond holders.

Also out of the question is the tax exemption, the ministry says, for fear of enormous backlash from the vast majority of the public resentful of investors amassing wealth with the help of government tax relief.

According to Mirae Asset Securities, the competition ratios for 10-year and 20-year products came to 0.29 to 1 and 0.33 to 1, respectively.

The ratio for the 20-year bond stood at 0.76 in June, dropping to 0.59 in July and 0.27 in August.

The figure for the 10-year bonds peaked at 3.49 to 1 in June before declining to 1.94 in July and 1.17 in August.

The poor performance is notable since the June figures exceeded 126 billion won ($94 million), propelled by the promise of up to 108 percent held-to-maturity increases in return.

The disappointing September figures followed the ministry having applied add-ons of 0.22 percent for 10-year products and 0.42 percent for 20-year products.

The previous add-ons were 0.15 for 10-year products and 0.3 percent for 20-year products.

Market watchers say the long-term investment vehicle will no longer be able to draw many investors, weakened by imminent rate cuts by the U.S. Federal Reserve and the Bank of Korea.

“Many bond investors will be inclined to seek short duration gains, rather than having up to 200 million won locked in for decades,” an industry watcher said.

The government introduced the two duration bonds to grant retail investors equal access to the vibrant market sector, long been limited to large institutional investors.

Changes in Treasury ownership midway through is restricted, making short-term scalping impossible. Scalping is an investment technique where an investor makes a small profit by holding a buy or a sell position for only a brief period.

Also, early redemption will remove the benefit of the flat rate, along with the high rates of returns. Funds redeemed will not be immediately available. 

Source: Koreatimes

The EUR/JPY cross weakens near 157.20, snapping to a two-day winning streak during the early European session on Wednesday. The Japanese weaker Imports and Exports reading raises some doubts over demand in Japan on the back of strong wages, which weighs on the Japanese Yen (JPY). The Bank of Japan (BoC) interest rate decision on Friday will be closely watched.

Japan’s Trade Balance shrank less than expected in August, although Imports and Exports missed estimations. Japan’s trade deficit widens to 695.3 billion yen in August from 628.7 billion yen in July, better than expectations for a deficit of 1.38 trillion yen. Meanwhile, Exports grew 5.6% YoY in August versus 10.2% prior, weaker than the 10.0% expected. Imports rose 2.3% in the same period from a 16.6% jump in July, below the consensus of a 13.4% rise. 

Economists from the Reuters poll expect the BoJ to leave the interest rate unchanged on Friday, but will likely raise interest rates again before the year ends. BoJ Governor Kazuo Ueda said that the central bank will continue to raise rates if the economy moves in line with its forecasts. BoJ policymaker Naoki Tamura stated on Thursday that the central bank should raise interest rates to at least 1% as early as the second half of the next fiscal year. The hawkish stance from the Japanese central bank might lift the JPY and create a headwind for EUR/JPY in the near term. 

On the Euro front, the Eurozone HICP inflation data is due on Wednesday. The headline HICP is projected to show an increase of 2.2% YoY in August, while the core HICP is forecasted to show a rise of 2.8% in the same period. If the inflation data shows a hotter than expected outcome, this could cap the downside for the shared currency. 

Source: FXSTREET