Daily Currency Update

USD - US Dollar

The USD is lower on the session, while European shares and US futures are gaining. Bond markets in major regions are also marginally stronger, but crude oil prices have decreased, with WTI now below $90. The environment appears stable in anticipation of today's FOMC meeting. It's expected that the Fed will maintain its stance, likely ending the tightening cycle at a probable 5.50%. Based on remarks from the Fed Chairman at Jackson Hole, persistent inflation means they won't rule out more tightening, with this year's projected average possibly staying at 5.625%. This is in part to shape market anticipations about a potential policy shift. Projections for 2024 might stay the same, but some tightening estimates may be reduced due to signals that the Fed is nearing its objectives. Economic growth might see an upward revision, whereas primary inflation forecasts might be lowered. It's worth noting that the anticipated Fed fund rates for next year align closely with the present median prediction of 4.625%, so alterations here could influence market responses. Currency markets might experience some turbulence from related news, but initial reactions to recent policy shifts haven't always indicated the long-term trend. The current valuation of the USD seems in line with the expected "business as usual" outcome for near-term policy decisions. A pronounced hawkish stance would be needed to substantially boost the USD. If that doesn't occur, there might be speculation on potential challenges, like the UAW strike or a government shutdown, and their impact on the US economy and the USD in the upcoming quarter.

CAD - Canadian Dollar

Canada continues to grapple with inflation issues. This might lead to further monetary adjustments. The significant increase in the Consumer Price Index (CPI) for August, combined with the robust job figures, indicates that previous tightening measures haven't adequately curbed the economy's vigor. Prices are on the rise once more, and this isn't solely due to housing or fuel costs. Based on the data, there's a slightly more than even chance of the Bank of Canada (BoC) implementing tightening policies in October. Meanwhile, an increase of 20 basis points is expected in December, and almost a complete 25 basis points is anticipated for January. This information further bolstered the already rising Canadian dollar, as the yield differences between US and Canada narrowed notably. The threshold for another rate increase seems to have lowered more than initially assumed, indicating that swap valuations might need to reconsider the possibility of sooner or more vigorous monetary tightening. Observe the USD/CAD trends.

EUR - Euro

The EUR/USD is showing slight gains in this session, yet the absence of domestic news or updates today means markets have minimal motivation to shift their ranges. The upcoming major domestic data release is the preliminary PMIs for the Eurozone in September, which will be out on Thursday. This data might indicate some steadiness after recent subdued activity trends.

GBP - British Pound

Sterling is lagging in performance during this session, though its decline against the dollar remains modest for the day, with sterling recovering from its earlier drop. The UK's CPI data came in lower than anticipated, registering a 0.3% increase in August, as opposed to the predicted 0.7%. This reduced the year-over-year rate to 6.7%, down from 6.8% in July and against a forecast of 7.0%. Given this, the market anticipations for the upcoming Bank of England (BoE) decision have been toned down, with only an 11 basis point tightening being priced in. However, it's uncertain if a single data report will allay concerns about wider inflationary trends, like wages. An interest rate increase seems more probable than the 11 basis point adjustment the Overnight Index Swaps (OIS) pricing currently suggests.