South African rand stable ahead of data-filled second half of week

British Pound

Reuters: Sterling reached a two-year high against the dollar on Tuesday, and also gained on the euro, supported by bets the Bank of England will cut rates less dramatically than the Federal Reserve while the British economy outperforms the euro zone. The pound rose as high as $1.3246, its highest since March 2022, and was last up 0.25% at $1.3222. The dollar has been under pressure in August as traders become more confident of significant Federal Reserve rate cuts this year, and the pound has been one beneficiary.

Markets are now priced for 100 basis points of cuts across the Fed's three remaining meetings this year, compared with around 40 basis points for the BoE - though the BoE did cut rates in August. Bank of England governor Andrew Bailey said on Friday at the Kansas City Fed's annual economic conference in Jackson Hole that further interest rate cuts would not be rushed because it was still too soon to be sure inflation was beaten. In contrast, at the same event a few hours earlier Fed chair Jerome Powell said that "the time had come" for the U.S. interest rate cuts.

"There was certainly a more cautious tone to the speech from Bailey in contrast to Fed Chair Powell's speech," said Derek Halpenny, head of research global markets EMEA at MUFG, in a note to clients. Also in the mix is British inflation, which has slowed to around the BoE's 2% target, despite stickiness in services prices. "The faster drop in inflation coupled with the expected caution from the BoE leaves the BoE with the expected most attractive real policy rate across G10 by the middle of next year and this fact will continue to act as a support for the pound," Halpenny said. He added that MUFG would adjust its sterling forecast higher.

The pound also gained on the euro, with the common currency last down 0.27% at 84.45 pence, its lowest since Aug. 1. Analysts at UBS said that they thought British domestic economic developments would be supportive for the pound as opposed to "still-subdued European economic data". They have a 83 pence target for the pair by year-end.

US Dollar

Reuters: The U.S. dollar held near its lowest level in more than a year against a basket of peers on Wednesday, with sterling trading just off multi-year highs, as markets focused on clues to the size of a widely expected U.S. interest rate cut next month. Cryptocurrency bitcoin took the early Asia spotlight, dropping over 6% after breaking below support around $60,000. Meanwhile, the Aussie popped up to a multi-month high after the latest domestic consumer price data came in a tick above consensus, accelerating 3.5% year-over-year. But overall moves in the foreign exchange market were muted as traders awaited fresh hints on the state of the world's largest economy.

Investors are unanimous in bets that the Federal Reserve will begin cutting interest rates next month following Chair Jerome Powell's dovish tilt last week, with the debate now centred on whether or not it will be a super-sized 50-basis point cut. The current pricing sits at a 36% chance for the larger cut, up from 29% a week ago, according to the CME Group's FedWatch Tool. Markets, which are fully priced for a 25-basis point cut next month, see just over 100 basis points worth of easing by the end of the year.

A preliminary estimate for U.S. gross domestic product in the second quarter is due later this week, along with the Fed's preferred inflation measure, the personal consumption expenditures index. But with attention shifting from inflation to the strength of the economy, the importance of this week's PCE data is debatable, said Matt Simpson, senior market analyst at City Index. "It will require a strong upside surprise to dispel expectations of multiple Fed cuts," he added. The dollar index, which measures the greenback against a basket of currencies, was last 0.07% higher at 100.67, hovering above a 13-month low of 100.51 hit in the previous session.

For the month, the dollar has fallen over 3%, putting it on track for its biggest monthly decline since November 2022. But given that markets have been pricing in easing from September for weeks now, downside momentum on the dollar appears to be waning, with support built up around 100.18/30, Simpson said. Sterling ticked down slightly to $1.3250 after hitting its highest since March 2022 against the greenback at $1.3269 on Tuesday. The euro slid 0.09% to $1.117375 and was sitting not far from a 13-month peak touched at the top of the week.

Bank of Japan Deputy Governor Ryozo Himino on Wednesday reiterated the central bank's stance that it would adjust the degree of monetary easing if it becomes confident that its economic outlook and price targets will be realised. However, he stressed that the central bank would remain vigilant to developments in financial markets. The yen seemed to largely brush aside the remarks as it edged 0.26% lower to 144.33 per dollar, off Monday's three-week high of 143.45 against the greenback.

Elsewhere, the Australian dollar hit a seven-month high of $0.6813 after July consumer price data showed a 3.5% rise in prices year-over-year, just above forecasts for a 3.4% rise. It was last up 0.1% at $0.67995. In cryptocurrencies, bitcoin was down 4.06% at $59,337.00 after slumping over 6% earlier in trade.

South African Rand

Reuters: The South African rand was broadly steady on Tuesday, ahead of several local data releases later this week. At 1532 GMT, the rand traded at 17.75 against the dollar, near its Monday closing level of 17.7575. South African investors will focus on July's producer inflation data on Thursday and money supply, budget and trade balance data on Friday, which could give clues on the health of Africa's most industrialised economy. Like other risk-sensitive currencies, the rand could also take direction from global drivers.

"The dollar-rand has encountered tough support around the 17.7000 mark. It is as if the currency pair is waiting for a catalyst that will open the door for another leg of rand appreciation," said ETM Analytics in a research note. "In the short term, it is unclear what that might be." On the Johannesburg Stock Exchange, the blue-chip Top-40 index closed about 0.5% higher.

Global Markets

Reuters: Global stocks were poised near record highs on Wednesday, with the next move riding on results at chipmaking market darling Nvidia, while sterling notched a 2-1/2 year high as traders bet that Britain will lag the U.S. in cutting interest rates. MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.4%. Japan's Nikkei fell 0.2%. Oil retraced a recent spike on Middle East tensions as gloom on Chinese demand returned to the fore and Brent crude futures traded just below $80 a barrel.

Nvidia's market value has ballooned thanks to its dominance of the computing hardware behind artificial intelligence. The stock price is up some 3000% since 2019 and with a market capitalisation of $3.2 trillion, a move in its shares affects the entire market. Second-quarter revenue will likely have doubled, though even that may disappoint expectations. Options pricing shows traders anticipate a near 10% - or $300 billion - swing in market value, likely the largest earnings move of any company, ever.

The results at the "so-called 'most important company in the world,' stand between Wall Street and fresh record highs, noted Capital.com analyst Kyle Rodda, and set the tone for the sector. "The company’s revenue and sales guidance is a barometer of AI capex, with inferences to be drawn about the health of the other mega-cap tech names," he said. The S&P 500 went up about 0.2% overnight and futures drifted 0.1% lower in Asia, while Nasdaq 100 futures fell 0.3%. E-commerce shares stabilised in Hong Kong - where the Hang Seng slipped 0.5% - after taking a kicking following downbeat remarks from discount online retailer PDD Holdings earlier in the week.

China's biggest sportswear maker, Anta was the top gainer and shares were up 8.5% after better-than-expected profits and $1.3 billion buyback. Shares in Australian gambling company Tabcorp slid 12% and headed for their largest drop since 2020 after the company wrote down asset prices and said rising costs meant it would miss earnings targets. Debt and currency markets were steady in the Asia session, though the Australian dollar popped up about 0.2% to touch its highest since January at $0.6813 after monthly inflation data was slightly higher than market expectations.

Globally a weakening dollar in anticipation of U.S. rate cuts has lifted most other currencies because markets see U.S. short-term rates, currently above 5.25%, as having furthest to fall. The yen traded at 144.32 per dollar. Interest rate futures price 100 basis points of U.S. rate cuts this year and last week Fed Chair Jerome Powell endorsed an imminent start to cuts saying "the time has come". The tone contrasts with caution at the Bank of England, which has helped sterling become the top-performing G10 currency with a 4.1% gain for the year-to-date.

It hit its highest in more than two years overnight at $1.3269 and hovered near that level on Wednesday. "UK services sector inflation is still uncomfortably high," Rabobank senior strategist Jane Foley said in a note. "In our view, the BoE is likely to only cut rates once a quarter going forward," she said, against a forecast for four consecutive 25 bp cuts from the Fed from September to January. Rates markets were steady with 10-year U.S. Treasury yields at 3.83%, two-year yields at 3.87% and the gap between the two its narrowest in nearly three weeks. Heavy selling in the New York evening drove bitcoin down 4% on the dollar to $59,350. Gold held at $2,517 an ounce.

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