Weekly economic commentary: Central bank rate divergences are apparent again

Wells Fargo Research Team Wells Fargo

Summary

United States: Recalibrating the monetary policy stance

The commencement of monetary policy easing comes at a time when overall economic growth remains solid, supported by stronger-than-expected retail sales, industrial production and residential construction in August. Yet, signs of labor market weakness have posed meaningful threats to the sustainability of growth, which underpinned the FOMC's decision to start the easing cycle with a 50 bps cut, rather than a conventional 25 bps move.
Next week: New Home Sales (Wed.), Durable Goods (Thu.), Pers. Income & Spending (Fri.)

International: Central bank rate divergences are apparent again

Central banks were in the spotlight this week. Not just the Federal Reserve, but foreign central banks as well. Institutions across the advanced and emerging markets met to discuss and decide monetary policy settings.
Next week: Eurozone PMIs (Mon.), Reserve Bank of Australia (Tue.), Bank of Mexico (Thu.)

Interest rate watch: An update to our Fed Funds forecast

The Federal Open Market Committee (FOMC) opted to reduce the target range for the federal funds rate by 50 bps at its meeting this week. Based on what we know now, we believe the FOMC probably leans toward downshifting to a 25 bps pace going forward. Accordingly, we look for the FOMC to cut the federal funds rate by 25 bps at each of its two remaining meetings of the year.

Topic of the week: Mexico passes sweeping judicial reforms

In Mexico, a constitutional amendment that calls for an overhaul of the country’s judicial branch passed through local congress, leaving market participants wondering what the financial, economic and governance-related implications may be. We remain cautiously optimistic on the prospects for Mexican financial markets and the peso for now, though we will be closely watching any developments with ratings agencies' assessment of the country's debt.

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Wells Fargo Research Team

Wells Fargo

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

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XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.