European FX Open- Further USD downside

We mulled in Monday's neutral-to-bearish The USD Week - Fed speak the big focus within an expected 99.00 - 101.75 range whether USD losses would begin to accelerate after last Wednesday's more aggressive -50BPs rate cut from the FOMC.

That looks to be panning out now and the psychological 100.00 mark in the DXY looks one of the next key levels in danger.

In truth, these levels are beginning to stack up, with EUR/USD also sitting just below its next resistance level at 1.1200-02 at the start of the day.

Main event today looks to be this morning's Riksbank policy rate decision where a -25BPs rate cut to 3.25% is widely expected. A 2024 underperformer for the most part, the SEK has been firming against both the EUR and USD ahead.

Data wise, Norway's credit indicator growth, Swedish PPI and French consumer confidence are due as well as Swiss UBS survey expectations and the KOF's autumn economic forecasts this morning.

In the second half and after Tuesday's big miss in consumer confidence (98.7 vs 104.0 consensus) attention turns to US new home sales for August. Again, we wrote in Monday's USD report that to some extent, in terms of the broader USD, markets will stay data dependent in assessing the timing and aggressiveness of future rate moves. The IMF chief suggested the US economy looks on track for a soft landing as monetary policy cooled inflation without tipping the economy into a recession.

Also on the central bank front, we are expected to hear from BOE's Greene, with Fed's Kugler expected tonight. Latterly, ECB's Knot said he expects gradual rate cuts from the ECB 'in the near future' and in H1 2025 and BOC governor Macklem welcomed inflation being back at target but wants to see more easing in core measures and shelter prices.

Overnight and another possible outcome we looked at in detail ahead, the PBOC lowered its 1-year MTLF rate to 2.00% from 2.30% (vs an unchanged forecast) while net withdrawing liquidity via the lending facility, as the monetary authority moves toward a short-term tool in an overhaul of its policy framework. USD/CNH briefly traded below the psychological 7.0000 mark earlier for the first time since May 2023.

And, AUD/USD rises for a third straight day, beyond 0.6900, despite Australia CPI slowing in August, at 2.7% y/y vs 3.5% the month previous, amid government rebates to cushion the impact of energy costs.

Elsewhere, all US stock futures are small in the red, as Israel carried out more air strikes on Hezbollah targets and Iran’s President Masoud Pezeshkian warned that Israeli attacks on Lebanon 'cannot go unanswered.' The Tehran official, however, also said there are plans to discuss a nuclear deal that has been stalled for years following a 'positive' meeting with French President Emmanuel Macron.

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

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