DXY appreciated 0.6% to 104.8, its highest close since 9 March. Fed Governor Christopher Waller reckoned US data was “looking good” for a pause at the FOMC meeting on 20 September. However, he kept the door open for another hike, which he believed would not trigger a US recession and hurt the labour market. The US Treasury 2Y yield has been holding a 4.60-5.10% range after the Fed pencilled two hikes and pushed for “higher for longer” rates at the FOMC meeting on 14 June. The 2Y yield rose 8.1 bps to 4.96%, closer to the range’s ceiling. Worries that inflation will struggle to fall further lifted the 10Y yield by 8.1 bps to 4.26%, nearer the 4.36% high on 22 August. Apart from the US reporting higher inflation in August, CPI inflation bounced to 3.4% YoY in August from 2.3% in July in South Korea and to 5.3% from 4.7% in the Philippines. USD reprised its haven status on global growth concerns from China’s slowdown. Dow and S&P 500 fell 0.6% and 0.4%, respectively, after Monday’s US Labor Day holiday. The Bank of Canada will likely join the Reserve Bank of Australia in keeping rates unchanged today.
DXY took back this year’s losses on 31 August and was up 1.2% YTD on Tuesday. Conversely, EUR, the DXY’s most significant component, is close to wiping out this year’s gains. EUR/USD depreciated by 0.7% to 1.0722, within striking distance of 1.0705 or its end-2022 level. CAD returned this year’s gains on 1 September and was down 0.2% YTD. JPY remained the weakest DXY component with an 11% YTD depreciation, followed by SEK (-6% YTD). The door is open for USD/CHF to trade higher towards 0.90, provided it holds above 0.8880 or its 100-day moving average. Consensus expects the Swiss National Bank to deliver its final hike on 21 September. GBP/USD’s tone is bearish from the 100-day MA looking to cross above the 20-day MA around 1.2655, but it needs to break below 1.2525 (100-week MA) to extend its downside. Stagflation worries are weighing on EUR ahead of the European Central Bank meeting on 14 September and the GBP before the Bank of England’s meeting on 21 September.
In Asia, USD/JPY hit the year’s high of 147.80 on Tuesday. Markets pushed out expectations for the Bank of Japan to gradually normalize its loose monetary policy from 2H23 into 2024. Many Asian currencies – CNY, TWD, KRW, SGD, PHP, VND, INR – are near the year’s worst levels hit in August. Asia relied on domestic demand to offset export weakness from the slowdown in China and Europe. Monetary policy tightening paused in many Asian countries, but Vietnam, South Korea, and the Philippines reported surprisingly firmer CPI inflation in August, with Taiwan likely to do the same today. Look for US Treasury Secretary Janet Yellen to warn again of China’s economy hurting Asia and the US economy at the G20 Summit in India on 9-10 September.
Quote of the day
“What happens is not as important as how you react to what happens.”
Ellen Glasgow
6 September in history
The first true supermarket, the “Piggly Wiggly”, was opened in Memphis Tennessee in 1916.
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