Federal Reserve to cut rates but by how much?

Today's Highlights

• Sharp drop in New Zealand business confidence

• Sterling still suffering from dreaded ‘B’ Word

• Euro sellers, beware

• US Dollar takes centre stage today

Current Market Overview

As well as being the last day of the month, today is one for heaps of economic data and an interest rate decision from the US Federal Reserve, no doubt making currency markets jumpy. We’ll start with a report overnight showing that UK consumer confidence is poor, but not as bad as forecast. The minus 11 reading was not as bad as the minus 13 the markets had forecast; the same as the previous month. That didn’t stop the Pound slipping further against the Euro. That movement has more to do with the dreaded B word than anything else, though. In fact, there was a lot of interesting news arriving while we in the UK slept soundly in our beloved and very welcome cooler night air.

New Zealand business confidence dips

New Zealand business confidence dropped again to minus 44.3 on the ANZ index; the worst since August last year. In fact this particular index hasn’t been in positive territory since August 2017; that’s a telling factor in itself. The GBPNZD exchange rate spiked by a percentage point or so and then fell back, but remains above yesterday’s levels. That weakness is prompted by the growing feeling that the Reserve Bank of New Zealand (RBNZ) will have to drop their base rate again; making yields on New Zealand investments less attractive.

Australian Dollar stronger on inflation data

There were further poor showings for Chinese purchasing managers indices (PMIs), but a larger rise in Australia’s consumer inflation than had been expected. The annual 1.6% rise was well above last quarter’s 1.3% and adds weight to arguments that the Reserve Bank of Australia (RBA) can keep its base rate on hold for a while yet. The Australian Dollar strengthened a little on the news.

Euro sellers, beware

This morning brings what we expect to be poor Eurozone economic growth data. The markets forecast just 0.2% growth in Q2 and just 1.1% growth on the year. There are rumours that the actual result will be worse than that, so beware if you are a Euro seller. There is also a smattering of inflation data from individual Eurozone states. The euro itself is pretty flat at the moment against all but the battered Pound. 

US central bank in the spotlight – time to take action?

The big news for today though is the expected interest rate cut from the US Federal Reserve. It is widely expected that the Fed will but the US base rate from 2.5% by either 25 or 50 basis points. If the latter, then a bit of USD weakness may ensue. This is a great night to put an automated limit order in the market to capture any spikes.

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