Source: AP

The GBP/JPY cross attracts some dip-buyers following an intraday slide to the 185.80 area and climbs to the top end of its daily range during the first half of the European session on Wednesday. Spot prices currently trade around the 187.25-187.30 region, just below a one-week high touched on Tuesday, though the fundamental backdrop warrants caution before positioning for an extension of this week's bounce from the vicinity of the monthly low. 

The British Pound (GBP) rallies across the board following the release of the UK Consumer Price Index (CPI) report, which fueled expectations that the Bank of England (BoE) would hold rates steady and acted as a tailwind for the GBP/JPY cross. In fact, the UK Office for National Statistics (ONS) reported that the core CPI (excluding volatile food and energy items) accelerated to the 3.6% YoY rate in August from 3.3% previous.

Adding to this, the UK August Services CPI inflation climbed 5.6% during the reported period as compared to the 5.2% in July and the headline print held steady at 2.2%. This, in turn, raises hopes that the BoE's rate-cutting cycle is more likely to be slower than in the United States (US) and the Eurozone. The upside for the GBP/JPY cross, however, remains capped as traders seem reluctant ahead of the key central bank event risks.

The BoE is scheduled to announce its decision on Wednesday and the market pricing suggests a little chance of an interest rate cut, though the possibility of a reduction in November remains on the table. The focus will then shift to the Bank of Japan (BoJ) policy update on Friday, which will play a key role in influencing demand for the Japanese Yen (JPY) and help in determining the next leg of a directional move for the GBP/JPY cross. 

Hence, a strong follow-through buying is needed to confirm that spot prices have formed a near-term bottom around the 183.70-183.75 region, or a one-month low touched last Wednesday. Nevertheless, the GBP/JPY cross, for now, seems to have snapped a two-day winning streak ahead of the BoE and the BoJ meetings. In the meantime, the critical Fed decision might infuse some volatility and produce short-term opportunities.

Source: FXSTREET

India will drive up to 35% of global energy demand growth over the next 20 years, petroleum minister Hardeep Puri said at the Gastech conference that started on Tuesday in Houston.

“If you say that global demand is increasing by one percent, ours is increasing by three times that,” Puri said. “In the next two decades, 35% of the increase in global demand will come from India.”

At the same time, the official said that India wants to succeed with the energy transition as well. “We will manage and succeed…on the green transition,” Puri said. “That’s the part with which I am most satisfied.”

India is already one of the biggest drivers of energy demand growth and a top energy importer. Earlier this year, the U.S. Energy Information Administration forecast that the country’s industrial expansion and energy demand was going to drive a threefold increase in natural gas demand.

In 2022, India’s natural gas consumption amounted to 7.0 billion cubic feet per day, with over 70% of the demand coming from the industrial sector. By 2050, India’s natural gas consumption is set to more than triple to 23.2 Bcf/d, according to EIA’s estimates.

Oil demand on the subcontinent is also on the rise, which has prompted plans to boost refining capacity significantly. At the end of last year, the country’s petroleum ministry announced plans to expand refining capacity by 1.12 million bpd every year until 2028.

Total Indian refining capacity is expected to increase by 22% in five years from the current 254 million metric tons per year, which is equal to around 5.8 million bpd, according to these plans.

Yet India is also eager to take part in the energy transition. It already has ambitious targets, seeing 500 gigawatts of renewables capacity installed by 2030, compared to around 153 GW capacity now.

Earlier this month, Renewable Energy Minister Pralhad Joshi said that a number of banks had pledged a total of $386 billion in investment commitments to help India boost its renewable energy industry.

Source: OILPRICE

Indonesia's central bank delivered its first rate cut in more than three years on Wednesday, opting to move hours ahead of the widely expected start of the US Federal Reserve's (Fed) easing cycle in a bid to bolster growth in Southeast Asia's largest economy.

Bank Indonesia (BI) unexpectedly trimmed the benchmark rate by 25 basis points to 6.00%, its first rate cut since February 2021. Only three out of 33 economists polled by Reuters had predicted the move, while all the others expected rates to be held steady.

BI also cut the overnight deposit facility and lending facility rates by the same amount to 5.25% and 6.75%, respectively.

The decision is consistent with BI's expectation that inflation will remain low in 2024 and 2025, an expectation of a stable rupiah and the need to bolster economic growth, BI governor Perry Warjiyo said.

The rupiah had been under pressure earlier this year in response to changing risk appetite in global financial markets, but has since reversed those losses against the US dollar to be trading slightly firmer than last year's close.

The currency weakened slightly to 15,355 per dollar soon after BI's announcement, from 15,345 beforehand.

Inflation in Southeast Asia's largest economy returned to within BI's target range in mid-2023 and has remained there since. August's inflation rate of 2.12% was the lowest annual rate since February 2022.

Source: Theedgemarkets

EUR/USD steadies above 1.1100 in Wednesday’s European session ahead of the Federal Reserve’s (Fed) monetary policy announcement at 18:00 GMT. The major currency pair gains as the US Dollar (USD) remains under pressure as the Fed is poised to deliver its first interest rate cut in more than four years.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, struggles to hold its recovery to near 101.00, a rebound fuelled by better-than-expected United States (US) monthly Retail Sales data for August.

The confidence of market participants that the Fed will start the policy-easing cycle aggressively has increased as officials said they remain concerned over a slowdown in job growth. Also, they are confident that inflation is declining towards the bank’s target of 2%.

According to the CME FedWatch tool, 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.

In addition to the Fed’s decision itself, the US Dollar will also be influenced by the Fed’s dot plot, economic projections, and the press conference of Fed Chair Jerome Powell, which will provide fresh guidance on interest rates. The Fed’s dot plot indicates where policymakers see the federal fund rate heading in the medium and long term.

Daily digest market movers: EUR/USD gains even though Euro struggles

EUR/USD remains firm at the US Dollar’s expense as the Euro (EUR) is underperforming against other major peers on Wednesday. The Euro faces pressure amid growing uncertainty over the European Central Bank’s (ECB) interest-rate path and the Eurozone’s economic performance.

ECB officials seem split over the interest rate-cut path due to diverging opinions over the inflation outlook. On Friday, the comments from ECB Governing Council member and Bank of France President, François Villeroy de Galhau indicated that more rate cuts are needed to avoid the risk of inflation coming in too low despite a dovish decision on Thursday. In Wednesday’s Asian session, Villeroy said the ECB “is likely to continue to cut rates.”

On the contrary, ECB Governing Council member Peter Kazimir said on Monday in a blog post: "We will almost surely need to wait until December for a clearer picture before making our next move," Reuters reported. Kazimir emphasized the need to be certain that price pressures continue to decline as projected, “otherwise policymakers might regret rushing to cut borrowing costs before inflation has been sustainably defeated”, he said.

Financial market participants expect that the ECB will deliver one more interest rate cut in one of its remaining meetings of the year, either in October or December. 

In the Eurozone calendar, Eurostat will publish at 09:00 GMT the final reading of the Harmonized Index of Consumer Prices (HICP) for August. Economists expect the figures to be aligned with the preliminary estimates, with annual headline inflation at 2.2% and core inflation at 2.8%. 

Technical Analysis: EUR/USD holds gains above 1.1100

EUR/USD steadies above 1.1100 in European trading hours. The major currency pair strengthened after retesting the breakout of the Rising Channel chart pattern formed on a daily time frame near the psychological support of 1.1000. The near-term outlook of the major currency pair has strengthened as the asset steadies above the 20-day Exponential Moving Average (EMA), which trades around 1.1060.

The 14-day Relative Strength Index (RSI) moves higher to near 60.00. A bullish momentum would trigger if it sustains above the aforementioned level.

Looking up, the high of 1.1155 from September 6 and the round-level resistance of 1.1200 will act as major barricades for the Euro bulls. On the downside, the psychological level of 1.1000 and the July 17 high near 1.0950 will be major support zones.

Source: FXSTREET

In focus today

Today’s main event will be the FOMC rate decision at 20:00 CET – we expect a 25bp cut of the Fed Funds Rate target (to 5.00-5.25%). This morning markets price in a 65% probability for an even bigger 50bp rate cut. Even though the Fed will now initiate its rate cutting cycle, we do not expect changes to the pace of QT. We expect the updated rate projections to signal a total of 3x25bp rate cuts in 2024 (prev. 1) followed by 6x25bp cuts in 2025 (prev. 4). See Research US – Fed preview: Dovish 25bp, 13 September.

In the euro area, we receive the final inflation data for August. The release will allow us to investigate the inflation drivers in August and we particularly look out for the ‘LIMI’ indicator of domestic inflation. Recently, domestic inflation has remained high and is a key reason we expect only a gradual cutting approach from the ECB.

From Sweden, August LFS is out this morning, expected to show a slight increase in seasonally adjusted unemployment to 8.5%. More interesting however is to gauge the developments in employment and hours worked as these give clues to household income growth and production activity. Both these factors surprisingly dropped in July, but we expect a bounce back now.

Economic and market news

What happened yesterday

In the US, retail sales increased by 0.1% (prior: 1.0%, consensus: -0.2%) in August, so a slight increase instead of a slight decrease. This signals that consumer spending remains stable. Industrial production came in stronger than expected at 0.8% (prior: -0.9%, consensus: 0.2%). We do not expect these numbers to affect the rate decision today, where our base case is a 25 bp rate cut, as stated above.

In Germany, the ZEW index declined more than expected in September. The expectations component plunged to the lowest level in a year while the assessment of the current situation component fell to the lowest level since Covid. The assessment of the current situation has been stuck at very low levels during the past year and the expectations component has now fallen in the past three months following a strong rebound in spring.

In Canada, consumer prices rose 2.0% y/y in August (prior: 2.5%, consensus: 2.1%), and fell by 0.2% m/m (prior: 0.4%, consensus: unchanged). The weaker than expected inflation print has led to some market speculation that the Bank of Canada (BoC) could be in for a 50bp rate cut at the October meeting. At the monetary policy announcement earlier this month BoC governor Macklem said that the central bank must increasingly gauge against the potential of inflation falling below target due to weak economic growth. Markets still price in biggest probability for a 25bp cut, but the probability of a 50bp rate cut rose from 46% to around 47.5% after the release.

Equities: Global equities were fractionally higher yesterday yet remained in a state of wait-and-see ahead of tonight’s highly anticipated FOMC meeting. Despite this, the sentiment leading up to the FOMC meeting has been positive, with the S&P 500 surpassing its mid-July peak. Yesterday also saw a decent cyclical outperformance, bolstered by a positive reception to a potential 50bp cut as small caps outshone others. In the US yesterday, Dow -0.04%, S&P 500 +0.03%, Nasdaq +0.2% and Russell 2000 +0.7%. Asian markets were mixed this morning, with Japan making up some of yesterday’s losses. US futures were marginally higher, while European futures edged lower.

FI: The main event today is the FOMC meeting tonight to see whether the Federal Reserve will cut by 25bp or 50bp as well as the comments regarding future monetary policy. The market is divided between a 25bp or 50bp rate cut, as there are pros and cons for both a 25bp or 50bp rate cut. We believe it will be a 25bp cut, but a positive market reaction depends on the comments after the meeting. If the Federal Reserve cuts “only” by 25p it is expected that they will strike a dovish tone afterwards.

FX: Yesterday’s session was generally muted, with no notable moves in the G10 space, as markets await the crucial FOMC meeting today. The USD strengthened slightly, with EUR/USD remaining just above 1.11, while USD/JPY drifted back above 142. Scandies were little changed, with EUR/NOK just below 11.80 and EUR/SEK just above 11.30. Markets are clearly waiting for the FOMC decision, which could potentially set the near-term tone for various crosses and overall risk sentiment.