On Friday, September 27, global markets continued to show a risk-on sentiment, fueled by Chinese stimulus measures that boosted investor confidence. The People’s Bank of China (PBOC) lowered the reserve requirement ratio (RRR) by 50 basis points, effective immediately. Additionally, the Chinese central bank cut the seven-day repo rate to 1.5% from 1.7%. This positive momentum was reflected in Asian indices and higher US S&P 500 futures, despite the US Dollar looking to build on its overnight recovery.
The US Dollar saw a brief dip in early trading hours after dovish remarks from US Federal Reserve (Fed) Governor Lisa Cook. Cook expressed support for a 50 bps rate cut, emphasizing the importance of normalizing the economy, particularly inflation. The Greenback struggled on Thursday as European and Wall Street stocks advanced on rate-cut momentum, while mixed US economic data failed to inspire USD buyers. With only two Fed policymakers speaking on monetary policy on Thursday, markets are now pricing in about a 50% chance of a 50 bps rate reduction by the Fed in November.
The upcoming US core Personal Consumption Expenditures (PCE) Price Index will be crucial in determining the USD’s next move. The Fed’s most preferred inflation gauge could affirm bets of an outsized next rate cut. Additionally, quarter-end flows could impact markets and contribute to increased volatility. The next directional move in the USD remains uncertain as investors monitor these key factors.
Across the FX board, USD/JPY remains volatile, experiencing fluctuations in response to Tokyo inflation data. The Japanese Yen faced a sell-off as Japan’s ruling Liberal Democratic Party’s leadership race headed to a run-off. The Australian Dollar, on the other hand, corrected from highs despite the risk-on mood, as the US Dollar rebounded. Other currency pairs such as GBP/USD and EUR/USD also saw varying levels of movement based on market dynamics and economic data.
In the commodities market, Gold prices remained below the record high of $2,686, with overbought conditions on the daily chart prompting a defensive stance from buyers. The Oil price struggled, with WTI trading near $67.25 as markets anticipated increased output from Libya and the OPEC+. These factors contributed to the overall market sentiment and influenced currency movements. As traders continue to closely monitor economic indicators and central bank policies, the outlook for major currencies remains uncertain in the short term.
