European FX Open - Ahead of the likely historic Fed rate cut

JPM CEO Dimon said whether the Fed cuts interest rates by -25 or -50BPs, the move is 'not going to be earth-shattering'.

Recall we were neutral-to-bearish in yesterday's The USD Week - Calming markets or going bold? within 99.50 - 102.00.

These levels easily hold for now. Inside, as RISK 1, we wrote our instinct/base case has been and remains for the smaller start to the tightening cycle. Again, it makes sense to go -25BPs initially as a deeper easing could needlessly scare/frighten investors, Americans alike that imminent recession etc is a very real threat. Does the Fed foresee a soft or hard landing at this stage? If they're confident/optimistic of the former, why risk sending the different message?

It looks to be a classic coin toss, with around -38BPs priced for later.

Ranges hold ahead, but the USD sits on the relative back foot and there are few genuinely bullish calls for after the likely historic rate cut verdict.

Ahead of tonight's verdict, there are some potentially impacting releases ahead.

Standouts are UK CPI for August, at the top of the hour, seen at 0.3% m/m and 2.2% y/y, the latter expected unchanged.

The core though is expected higher at 3.6% y/y vs 3.3% last and the well watched and sticky still services component is forecast to come in at 5.6% y/y vs 5.2% last. The latter is set to be buoyed by the volatile airfares and hotel prices and ahead of tomorrow's BOE rates verdict the data is unlikely to be too rate cut friendly.

Also, later in the morning, we get EMU final CPI for August, seen at 2.2% y/y, with the core 2.8% y/y.

US building permits/housing starts lead in the second half.

There are a host of ECB speakers through the session, including Holzmann, Muller and Nagel. And, also tonight, the BOC releases its summary of deliberations.

Meanwhile, US stock futures are little changed amid AP reports Hezbollah accused Israel of orchestrating an attack that killed at least 9 people and wounded thousands more in Lebanon and Syria, while the NYT said Israel planted explosives in Taiwanese-made pagers.

On the US presidency front, Bbg report Donald Trump said that he would revive the state and local tax deduction, a popular tax break for New Yorkers that the former president limited during his time in the White House.

---- Subscribe to read more ----

To receive this analysis plus much more, subscribe to IGM. Request your free trial of the service today.