USD Softens On Beige Book Data, Powell & ECB In focus Today

The US Dollar softened from highs yesterday as the Fed’s Beige Book showed that price pressure have started to ease in some areas of the US. The sell-off came despite a further set of hawkish comments from various Fed members. Fed’s Mester advised on the importance of pushing ahead with continued tightening and warned against the dangers of easing off prematurely, citing still-elevated inflation.

These comments were broadly echoed by Fed’s Brainard who also called on the need to keep tightening and said that the fight against inflation will last “as long as it takes.” Brainard’s comments were a little more tempered, however, with the Vice Chair also warning against the risks of tightening too much. Traders now look to Fed chairman Powell who is due to speak later today.

Key Factors for Today

- USD softens following Beige Book price drops – Fed’s Mester and Brainard maintain hawkish commentary
- Powell due to speak today
- Equities recover amidst USD weakness
- BOC Hikes by 75bps – signals more to come
- ECB expected to hike by 75bps today
- Gold and silver stabilise
- Oil falls further on recession fears

Coming Up

- EUR ECB Rates meeting
- USD Fed chairman Powell to speak
- Oil US Crude oil inventories (EIA)

Equities Recover as USD Slips From Highs

Equities prices bounced back yesterday, benefiting from weakness in the US Dollar. Despite market pricing for a larger September hike increasing, Markets across the board rebounded yesterday with the DAX even shrugging off hawkish ECB concerns to rally almost 2% on the day. While the European open today has seen a more timid start, most indices are still in the green for now suggesting that, should USD retrace further, there is room for a fuller recovery today.

BOC Hikes By 75bps, Signals More to Come

In FX, the pull-back in the US Dollar has allowed for a broad recovery, headlined by rallies in EUR and NZD. CAD has been on higher on the back of yesterday’s BOC meeting which saw the central bank hiking rates by a further 75bps. Notably, the BOC maintained its guidance that more rate increases will be necessary, pushing back against the idea of a near-term end to tits tightening program. In terms of how much higher it will go on higher, the BOC said this will depend on the impact of its tightening, which it continues to monitor.

ECB Expected to Hike by 75bps Today

Today, the focus will switch to the ECB. The bank is also expected to press ahead with a larger 75bps hike, following a 50bps move in July, as it too battles rampant inflation. Special attention will be on the bank’s update inflation forecasts with any upward revisions likely to be taken as a pre-cursor to increased ECB hawkishness moving forward. Traders will also be keen to hear how the bank addresses recent EUR weakness.

Metals Stabilise, Oil Falls Lower as Recession Fears Mount

In the metals and commodities space, both gold and silver benefited from the weakness in USD. Gold prices are holding above the current 2022 lows for now, while silver has moved back above the prior 2022 lows following a fresh breakdown last week. Oil prices have been unable to capitalise, however, with crude futures breaking down to fresh lows this week – fast approaching a retest of the 2022 opening level. The backdrop of growing recessionary fears amidst increased central bank tightening is hampering the demand outlook for oil here, weighing on prices.