Currency quick take: 10 September 2024

Brian Daingerfield shares his views on currencies and FX markets for the week ahead.

10 Sep 2024

What’s happening with currencies and FX markets this week?

US lacks a clear signal

Last Friday’s employment report failed to provide the market with a clear indication of a 25 basis point (bp) or 50bp interest rate cut from the Federal Reserve (Fed) next week.

Shortly after the jobs report, three prominent Fed officials also chose not to provide the market with further clarity. Looking back at previous easing cycles and the signalling from the Fed, it feels a little bit unusual for there to be such a degree of uncertainty around the scale of easing in September and beyond. In my opinion, it once again highlights the difficulty markets have had in interpreting guidance from global central banks throughout this policy cycle.

With the Fed now in the quiet period ahead of next week’s meeting, Wednesday’s inflation report and Thursday’s jobless claims appear the key data. Given that Friday’s employment report failed to deliver a decisive signal on the scale of easing, I believe currency markets may look to this week’s Consumer Price Inflation (CPI) for that guidance.

US politics is expected to come into the fray this week, as former President Trump and Vice President Harris face off in the presidential debate on Tuesday.

UK labour market data in focus

It was quiet last week, but the UK data calendar is heating up. Tuesday’s labour market data is likely to be the key release this week.

As with the Fed, the labour market looks a key focus for Bank of England (BoE) policymakers. A quicker than expected weakening in the labour market may see futures markets become more confident that the central bank lowers interest rates more quickly.

Our UK economists expect the BoE to leave interest rate at 5% in September, and expect a next 25bp cut at the November meeting, which coincides with updated economic projections form the central bank.

A 25bp cut by the ECB is all but a done deal

The key event in the euro area this week is Thursday’s rate decision from the European Central Bank (ECB). According to interest rate futures markets, a 25bp cut from them is a done deal, with markets pricing it with a high degree of certainty.

NatWest European economists expect the ECB to ease the policy rate to 3.5% on Thursday but offer the market a reminder that the ECB is not the Fed by pushing back against calls for a jumbo (50bp) rate cut. The ECB is likely to remain data dependent on the chances of an October move.

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