What’s going on here?
The euro is holding steady at $1.1146, brushing close to its highest point since July 2023, thanks to robust euro zone business activity data.
What does this mean?
Recent data showcasing solid business activity in the euro zone has kept the euro elevated, despite an initial dip caused by Germany’s ongoing business contraction in August. The euro’s buoyancy is also supported by a weakening dollar. The Federal Reserve’s dovish signals and softness in the US job market are major contributors to this trend. Traders are keenly awaiting euro zone wage growth data due at 0900 GMT, which could shift expectations for upcoming European Central Bank (ECB) policy decisions, thereby steering the euro’s path. Meanwhile, the dollar index has ticked up by 0.1% to 101.22, despite recently dipping below 101 for the first time this year.
Why should I care?
For markets: Central banks in the spotlight.
Market participants are carefully monitoring Federal Reserve signals and upcoming economic data releases to gauge the likelihood of future rate cuts. Traders now see a 38% chance of a 50-basis-point cut at the Fed’s September meeting, up from 33% the previous day, and full pricing in of a 25 bp reduction. The minutes from the Fed’s July meeting indicate a strong inclination towards a rate cut, boosting market confidence. Jerome Powell will deliver a highly anticipated speech at the Jackson Hole symposium, with insights from Bank of England Governor Andrew Bailey and ECB Chief Economist Philip Lane also expected to influence market sentiment.
The bigger picture: Global central bank maneuvers.
The global economic picture is shaped by central bank actions beyond just the Fed. The Bank of Japan’s Governor Kazuo Ueda will testify on recent rate hikes, indicating Japan’s monetary policy responses amidst market volatility – a stance prompted by Deputy Governor Shinichi Uchida’s comments to prevent immediate tightening. Concurrently, the stronger Swiss franc and a stable Australian dollar highlight varied international currency movements, reflecting diverse economic conditions and central bank strategies.
