UK August CPI Report

Source: Poundsterlinglive

NZD/USD edges higher to near 0.6200 during the early European hours on Wednesday. The upside of the NZD/USD pair could be attributed to the improved risk sentiment ahead of the Federal Open Market Committee’s (FOMC) monetary policy meeting scheduled for Wednesday.

The US Dollar (USD) loses ground amid rising expectations that the US Federal Reserve (Fed) may announce a substantial 50 basis point rate cut on Wednesday. The CME FedWatch Tool indicates that markets are assigning a 37.0% probability to a 25-basis-point interest rate cut, while the likelihood of a 50 basis point cut has risen to 63.0%, up from 62.0% just the previous day.

Additionally, lower US Treasury yields contribute to the downward pressure for the Greenback. The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against other six major currencies, retraces its recent gains from the previous session. The DXY trades around 100.80 with 2-year and 10-year yields on US government bonds standing at 3.60% and 3.64%, respectively, at the time of writing.

UOB Group FX strategists Quek Ser Leang and Lee Sue Ann highlighted that the New Zealand Dollar (NZD) is unlikely to see significant further gains in the short term. Instead, they expect the NZD to trade within a range of 0.6160 to 0.6205. Over the longer term, they anticipate a broader trading range between 0.6135 and 0.6235.

On Wednesday, New Zealand's Current Account deficit expanded to NZD 4.826 billion in the second quarter, up from a deficit of NZD 3.825 billion in the previous quarter. The Q2 deficit exceeded market expectations, which had predicted a trade deficit of NZD 4.0 billion.

Additionally, traders will be closely monitoring New Zealand's Gross Domestic Product (GDP) data for the second quarter, set to be released on Thursday. The GDP is expected to contract by 0.4% quarter-on-quarter in Q2, following a 0.2% expansion in Q1. On an annual basis, economic growth is projected to decline by 0.5%, compared to the previous 0.3% growth.

Source: FXSTREET

Israel’s intelligence service planted explosives in several thousand pagers that Hezbollah had ordered from Taiwan, Reuters has reported in the wake of deadly pager explosions that killed nine in Lebanon earlier this week.

Among those injured in the Tuesday explosions was Iran’s envoy to Lebanon, which might prompt another threat from Iran to Israel in what would be the latest step in a long escalation dance and one more bullish factor for oil amid a scarcity of bullish factors.

According to Reuters sources who remained unnamed, “The Mossad injected a board inside of the device that has explosive material that receives a code. It's very hard to detect it through any means. Even with any device or scanner.”

Such a code was sent to 3,000 of the low-tech devices that Hezbollah uses for communication and those exploded simultaneously, the Reuters sources said, with one noting that Mossad had concealed up to 3 grams of explosive material in each pager.

“This would easily be the biggest counterintelligence failure that Hezbollah has had in decades,” a former U.S. deputy national intelligence officer for the Middle East told Reuters.

Following the attack, Lebanese authorities and Hezbollah itself blamed it on Israel, even before the information about the pagers emerged, and Hezbollah said it would retaliate. The Lebanese authorities noted that there were civilians among the victims.

“It sends a significant message to Hezbollah leadership that, ‘We can get you anywhere,’” Randa Slim, a director at the Middle East Institute think tank in Washington, told the Wall Street Journal. “And it very much affects morale.”

“The war on the border is no longer on the border—with this attack it has expanded into their homes and shopping places around Lebanon,” Slim also said.

Israel has already signaled it does not mind using forceful means to return people evacuated from the northern part of the country, which borders Lebanon, to their homes, to which end Hezbollah attacks in the area must be stopped.

Source: OILPRICE

UK inflation held at just above the Bank of England (BOE)’s 2 per cent target in August, leaving the door open to further interest-rate cuts later this year. 

Consumer prices rose 2.2 per cent from a year earlier, the same pace as in July and undershooting the BOE’s forecast, the Office for National Statistics said on Sep 18. The reading was in line with the median expectation of economists surveyed by Bloomberg. Downward pressures from motor fuels were offset by an upward push from air fares.

The figures are likely to keep the BOE on track for a further loosening in policy later this year after it cut rates for the first time since the pandemic on Aug 1, citing easing underlying inflation.

Services inflation, a key gauge being watched closely by the BOE, rose to 5.6 per cent in August from 5.2 per cent in July. However, a pickup had been widely anticipated and is expected to prove temporary. Both services inflation and the headline rate are running below levels forecast by the BOE in August. 

While policymakers are expected to leave rates unchanged at 5 per cent at their decision on Sep 19, market expectations of further easing have been mounting. Traders are pricing in cuts for both November and December with five more to follow in 2025.

The BOE decision this week will be announced a day after the Federal Reserve is expected to kick off its own easing cycle amid fears about the health of the US economy. 

Source: Straitstimes

The Pound Sterling (GBP) gains against its major peers in Wednesday’s London session as the United Kingdom (UK) inflation data for August came in hotter than expected. The Office for National Statistics (ONS) reported that the core Consumer Price Index (CPI) – which excludes volatile items such as food, energy, oil and tobacco – rose by 3.6%, more than the 3.5% estimated and accelerating from 3.3% in July.

Services inflation, a closely watched indicator by Bank of England (BoE) officials, rose sharply to 5.6% from 5.2% in July. This acceleration in inflation could force traders to pare back bets supporting one more interest rate cut by the Bank of England (BoE) in the remainder of the year.

Headline inflation, meanwhile, rose by 0.3% and 2.2% on a monthly and annual basis, respectively, meeting analysts' expectations.

Going forward, investors will focus on the BoE’s monetary policy announcement on Thursday. Before inflation data came out, markets were already expecting the BoE to leave interest rates unchanged at 5%. With August data signaling that inflation remains stubborn, market expectations for rates remaining at their current levels by the year-end may increase.

Daily digest market movers: Pound Sterling outperforms US Dollar ahead of Fed meeting

The Pound Sterling jumps to near 1.3170 against the US Dollar (US) after the release of the hot UK inflation data for August. The GBP/USD pair aims to reclaim the immediate resistance of 1.3200. The Cable is expected to face volatility as the Federal Reserve’s (Fed) monetary policy decision will be announced at 18:00 GMT.

According to the CME FedWatch tool, the central bank is certain to start reducing interest rates. This will be the first interest rate cut decision by the Fed in over four years. However, the debate is over the pace by which key borrowing rates will be reduced. 30-day Federal Funds Futures pricing data shows that the probability of the central bank cutting rates by 50 basis points (bps) to 4.75%-5.00% is at 65%, while the rest favors a 25-bps rate cut.

The Fed will pivot to policy normalization as the latest commentaries from officials indicated that the central bank is more concerned about deteriorating labor demand rather than inflation.

Apart from the Fed’s policy decision, investors will also focus on the Fed’s dot plot, economic projections and the press conference of Fed Chair Jerome Powell after the interest rate decision. The Fed dot plot indicates the collective forecast for the federal fund rate by all policymakers in the medium and long term.

Technical Analysis: Pound Sterling aims to reclaim 1.3200

The Pound Sterling approaches 1.3200 against the US Dollar in European trading hours. The near-term outlook of the GBP/USD pair remains firm as it holds above the 20-day Exponential Moving Average (EMA) near 1.3100. Earlier, the Cable strengthened after recovering from a corrective move to near the trendline plotted from the December 28, 2023, high of 1.2828, from where it delivered a sharp increase after a breakout on August 21.

The 14-day Relative Strength Index (RSI) stands around 60.00. A fresh round of bullish momentum could occur if the oscillator sustains around this level.

Looking up, the Cable will face resistance near the August 27 high of 1.3266 and the psychological level of 1.3500. On the downside, the psychological level of 1.3000 emerges as crucial support.

Source: FXSTREET