Franc sharpens decline to two-week trough after cold Swiss inflation data
- Inflationary pressures recede on SNB
- Odds increase of third Swiss rate cut
Swiss franc fell in European trade on Tuesday against a basket of major rivals, sharpening losses for the fifth straight day against the dollar and plumbing two-week lows after cold Swiss inflation data for August.
Weak internal and external inflationary pressures on Swiss National Bank policymakers bolster the case for another SNB rate cut in September for the third time this year.
The Price
The USD/CHF pair rose 0.3% to 0.8537, the highest since August 23, with a session-low at 0.8505.
The franc closed down 0.2% on Monday against the dollar, the fourth loss in a row after strong US growth data, which reduced the odds of a bigger 0.5% Fed rate cut in September.
Swiss Inflation
Earlier Swiss data showed consumer prices up 1.1% y/y in August, below estimates of 1.2%, and compared to a 1.3% rise in July.
On a monthly basis, consumer prices were flat, below estimates of a 0.1% increase.
As consumer prices slow down in the US, Britain, and Europe, external inflationary pressures on the SNB are receding as well, which pace the way for a third rate cut in September.
SNB
At the June 20 meeting, the Swiss National Bank voted to cut interest rates by 25 basis points to 1.25%, while analysts expected no change at 1.5%.
The previous rate cut in March made the SNB the first major central bank to start unwinding its policy tightening measures that were aimed at curbing inflation.
The SNB said back then that it has become able to maintain suitable monetary conditions, and will monitor inflation closely and will adjust policy tools as needed according to developments.
Yen falls to two-week low on US yields
Markets wait for data on Japanese rate hikes
Markets also wait for important US labor data
The yen fell in Asian trade on Tuesday against a basket of major rivals, sharpening losses for the fifth straight session against the dollar and plumbing two-week lows, as markets wait for more clues on the odds of a third Japanese rate hike this year.
Yen is also pressured by higher US 10-year treasury yields, widening the gap with Japanese yields and hurting the yen’s standing.
The Price
The USD/JPY pair rose 0.25% to 147.21 yen per dollar, the highest since August 20, with a session-low at 146.52.
The pair lost 0.5% on Monday, the fourth loss in a row as US yields gained ground.
Japanese Rates
Traders are expecting a low chance of a BOJ rate hike at the October meeting, with the odds of a December BOJ rate hike standing at 70%.
US Yields
US 10-year treasury yields rose 0.65% today on track for the sixth daily increase in a row, hitting three-week highs at 3.932%.
The developments came as the odds of aggressive policy easing by the Federal Reserve faded, with the US GDP growing by better than expected rates in the second quarter.
According to the Fedwatch tool, the odds of a 0.5% Fed rate cut in September stood at 31%, and the odds of a 0.25% rate cut stood at 69%.
Now investors wait for crucial US payrolls data next Friday to gather more clues on the likely path ahead for monetary policies.
Wall Street closed for holiday
Wall Street was closed today for the Labor Day holiday, with markets resuming operations tomorrow.
Later this week, the all-important US payrolls report will be released and will shed light on the state of the labor sector and economic activities.
The data could impact the pricing for upcoming Federal Reserve rate cuts this year.
Brent sharpens decline to two-week low as OPEC+ gears for production hikes
- Global supply surplus in the final quarter of the year
- Weak fuel demand in the US and China
International benchmark Brent fell in American trade on Monday, extending losses for the second day and hitting two-week lows amid expectations OPEC+ will raise production in October.
Prices are also pressured by concerns about weak fuel demand in the US and China while industrial sectors slowed down.
Prices
Brent fell 0.65% today to $76.25 a barrel, the lowest since August 22, with a session-high at $77.20.
Brent closed down 2.25% on Friday, the third loss in four sessions amid reports about OPEC+ production plans.
Global oil prices lost 6% on average in August, the second monthly loss in a row due to global demand concerns.
OPEC+
Six different sources from OPEC+ told Reuters that eight members of the global alliance are ready to issue a scheduled production hike of 180 thousand bpd in October.
The sources said that the production hike plans are intact, with hopes that upcoming Federal Reserve rate cuts would boost economic growth.
Saudi Arabia’s energy minister Abdelaziz Bin Salman said recently that OPEC+ might pause or reverse production hike plans if it were decided that markets weren’t ready.
Global Demand
OPEC reduced its forecasts for global demand growth by 135 thousand bpd in the August report, due to weakness in Chinese demand.
The International Energy Agency said global demand rose in the second quarter by the slowest pace since late 2022, at just 710 thousand bpd.
The IEA said that weak growth in China is curtailing global gains, with Chinese oil demand shrinking in June for the third straight month.