North American FX Open - ECB set to deliver second 25bps rate cut of the cycle

The ECB meeting is today's main event, with an overwhelming expectation that they will deliver their second 25bps cut of this cycle. Traders looking for clues to see if the ECB want to speed up their one a quarter rate cut paste, are likely to be left disappointed, with President Lagarde set to keep her options open and stress the central bank's data dependence. It will be interesting to see whether Lagarde makes any concessions to recent much slower inflation results or she continues to worry on stubbornly persistent price pressures, particularly in the services sector, where wages are still rising materially.

Goldman Sachs have turned more dovish on the ECB, seeing sequential rate cuts after a further easing in December. They add that they have downgraded their Euro area growth outlook on the back of weakness in the manufacturing sector, especially in Germany, and greater skepticism that the 15% household savings rate will come down anytime soon.

The biggest influence on Eur/Usd today could well be a massive option expiry at 1.1000 for nearly Eur 3.3bln.

Usd/Jpy enjoyed a minor bid overnight, helped in part by the first slowing in Japanese PPI in eight months in August at 2.5% y/y vs the 2.8% y/y forecast and 3.0% y/y result in July.

Meanwhile, BOJ Board Member Tamura indicated that the central bank needs to raise its benchmark rate more aggressively than many economists have been expecting, noting that the neutral policy rate in Japan is 1% or higher.

Sweden's CPIF inflation gauge fell sharply to 1.2% y/y in August from 1.7% prior and below the 1.4% estimate.

The Riksbank's forecast, issued in June, was for a 1.7% print. Nordea suggested that a 50bps rate cut from the Riksbank is again a possibility after prices rose at the lowest pace in almost four years in August.

The bank said that if the Swedish economy continues to be weak, and inflation remains below the central bank’s 2% target, it could open up for new board member Seim to vote in favor of a larger cut than the traditional quarter-point increments that most economists expect going forward.

In the UK, the RICS said that the UK housing market is showing signs of picking up after the Bank of England rate cut. Goldmans also turned more dovish on the BoE and now expect the central bank to move to consecutive rate cuts starting in November.

US data today includes PPI and jobless claims updates, while we also receive the Q2 household change in net worth. As well as ECB President Lagarde's post meeting presser, we should also hear from the SNB's Jordan.

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