North American FX Open - 50bps cut call from ex Fed Dudley undermines the Usd

The DXY index has slipped overnight to its lowest levels of the week down below 101.000, after former NY Fed President Dudley argued that he sees a case for a more aggressive 50bps cut from the FOMC next week. It is worth noting that Dudley was seen as a dovish member of the FOMC, in his time in office. Dudley cited a slowing US labor market, with risks to jobs being greater than lingering challenges to inflation, as reasons for his calls for a 50bps move.

Usd/Jpy made a marginal new low for its recent sell-off, down to 140.37 and now has the Dec 28 base at 140.25 in its sights. Remember any move below the 140.25 level, would put the pair down at fourteen month lows.

HSBC raised its Yen forecasts on the view that it is regaining its 'safe haven' characteristics and that the Fed is pivoting to a rate cut cycle. The UK/multinational giant revised its Usd/Jpy forecasts to 142 and 138 for Q4 and Q2 2025 from 148 and 144 respectively. Bbg report that some hedge funds are adding bullish Yen bets in the options market on expectations it will extend its rally. Signs that the BOJ is intent on raising interest rates further this cycle, possibly before year-end, has made the YEN the world's top performer in Q3 so far.

The day after the ECB's second rate cut has been littered with opinion from board members, with Simkus saying that the speed of ECB rate cuts will depend on the data and that the inflation trajectory suggests that more ECB rate cuts must happen. Rehn admitted that he sees question marks over the growth outlook and that weakness in the Euro area economy is more structural than hoped.

Villeroy stressed that market inflation expectations are well below the ECB's forecasts and that the pace off ECB rate cuts has to be "highly pragmatic." Meanwhile Holzmann stated that October might not be time for another cut and that 2.5% is probably closer to the neutral rate.

Finally Lagarde offered little in the way of forward guidance, as she insisted that the board is determined to reach their inflation target and added simply that they will look at data for rate moves.

In the UK, the public's inflation expectations fell to a three year low. Expectations for the next 12 months fell to 2.7% in August, its lowest level since Aug 2021.

On the US presidential election front, Trump ruled out more debates with Kamala Harris and pledged to nix taxes on overtime pay and a Reuters/Ipsos poll conducted after the Tuesday night's TV contest showed Harris marginally expanding her lead to 47% against Trump’s 42%.

US data today includes import/export prices and the UMich survey.

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