The Greenback (USD) recovered some lost ground against the Japanese Yen (JPY) on Wednesday after data from the United States (US) surprised the markets. That triggered a jump in the USD/JPY, which traders volatile at around 147.30/98, remains negative.
The Non-Manufacturing PMI for August, also known as services, was released by the Institute for Supply Management (ISM), and it demonstrated that economic activity is accelerating. The reading exceeded July’s 52.7 and was 54.5 instead of the predicted 52.5. The price index subcomponent increased from 56.8 in July to 58.9 in August.
ECB Rate Hike
The Governing Council of the European Central Bank (ECB) will convene the following week. Danske Bank analysts believe that the ECB will carry out one more 25 basis point rate hike. They claim that the sustained high inflation momentum and the anticipated inflation levels above the target are what led to this decision.
Quote from Danske Bank:
We expect the ECB to deliver a final 25bp rate hike during next week’s ECB meeting due to still too strong inflation momentum and projected inflation above the target. We also expect an advancement of the end to full reinvestment process of PEPP currently guided for Dec24 to be on the cards. Specifically, we expect ECB to ‘task committees’ for an announcement at the October meeting.
The economic outlook has worsened since the July meeting, but the momentum in inflation is yet to show convincing dynamics, and given ECB’s sole inflation mandate, we expect this inflation momentum to prevail.
A compromise in the governing council could be no hike and an acceleration of the balance sheet normalisation, but given the policy rate is the primary tool to calibrate its monetary policy stance, we expect a rate hike.
Oil and Gold Update
As reflation fears have been fuelled by OPEC+, where Saudi Arabia and Russia are anticipated to maintain production cutbacks through the end of the year, gold prices are in danger of another fall. Although the duration of supply restrictions was not anticipated, their extension was. As a result, the US dollar should continue to rise, helped along by worries about Chinese and European economic development