Scope For A Euro Bounce

Some movement in UK swap rates

UK rates eased significantly yesterday and throughout the month, with two-year sterling swap rates down by around 30 basis points. It's uncertain whether this is due to the weak UK GDP data from yesterday or a broader expectation that global rates will be lowered, with the UK following suit, despite no signals from the Bank of England.?If Euro rates decline as expected today, GBP/EUR could adjust to the €1.1786 range.

No Major Data

Too much ECB easing priced for 2024

The ECB will announce its rate decision at 13:15 BST, with expectations of a 25bp cut to the deposit rate (to 3.50%) and a 60bp technical adjustment to the Main Refinancing Rate. There is no expectation for the ECB to provide enough guidance to justify the 11bp of easing priced in for the 17 October meeting. The view remains a 25bp cut today and on 12 December, potentially lifting EUR/USD toward $1.1080.

Swiss National Bank President Thomas Jordan speaks at 15:25 BST. While it's unclear if he'll address monetary policy, the market pricing in 32bp of cuts for the 26 September meeting seems excessive. There is no expectation of more than a 25bp cut given the low rate (1.25%) and strong economic performance.

Data:

1:15pm - Monetary Policy Statement

More settled equities can see the Dollar soften a little

Yesterday’s slightly higher-than-expected core US CPI for August led to 7bps being priced out of the 2024 Fed easing cycle, though 100bps of cuts are still expected. Focus will be on August PPI and weekly initial claims data, with PPI gaining attention due to its relevance for the Fed’s preferred inflation measure, the core PCE deflator. However, the Fed's shift towards rate cuts means markets are now more focused on jobs data, with initial claims likely to remain low near 225,000 due to the holiday-shortened week.

The Dollar is down today, with a stronger risk environment and a slightly stronger Euro expected, impacting the DXY. Tech stock rallies, led by Nvidia, boosted Asian markets, and there’s a chance Chinese leaders could announce fiscal support measures at the National People's Congress. Any move to stimulate weak Chinese demand would help alleviate market fears.

Data:?

1:30pm -?Core PPI m/m

1:30pm -?Unemployment Claims