Will Warsh surprise markets with a rate rise this evening?

Good morning

Aussie CPI inflation came in lower than expected overnight leading markets to pretty much discount any possibility of an RBA rate rise next month.  AUD weakened on the release, AUDUSD and AUDNZD each traded down 40 pips or so, while GBPAUD pushed up 100 pips to 1.9150, although is currently 30 pips off that level as I type.  Some looking at downside AUDJPY which has already shifted from 114.60 to 113.60 but still well above July lows which came in around 111.20.  Still tough to buy Yen though.

In the majors, GBPUS is 1.3300, EURUSD 1.1395 which puts GBPEUR at 1.1675, its lowest level since early July and just a few pips off the support area around 1.1660.  Some see GBP weakness as a result of NIESR’s adjustment to its UK rate forecast, now seeing rates on hold through 2026 compared with the 25bps rise they forecast back in April.  Some concerns over Burnham’s spending plans also impacting GBP.

Iran is reported to have launched attacks on US assets in Jordan, US successfully intercepted the surprise attack and then struck at Iranian-backed militants in Iraq.  No surprise that oil prices pushed higher although with WTI and Brent now $82 and $85 we are still well below last week’s highs.  Trump continues to insist Iran are desperate for a deal although Iran’s actions don’t seem to support this thinking.

FOMC rate announcement this evening is clearly the main event in an otherwise sparse calendar.  Plenty of speculation ahead of the meeting, rates are expected to be kept unchanged but there has been talk that Warsh could surprise the markets with a 25bps rate rise.  He has a dislike for forward guidance and has made it clear he wants markets to be nervous ahead of FOMC meetings.  I still feel a hold is most likely but if Warsh wants to make a statement this could be the time to do it.  35 usd pips for an overnight 1.1400 EURUSD put , or 40 yen pips for a 163.75 USJPY call could be ways to have low risk upside USD exposure heading into the meeting.

Looks like it’ll be a hot day today, back above 30°c which may make the outdoor lunch I have planned a little uncomfortable but I’m hoping there will be a bit of a breeze to cool things down a bit.  Mind you, I’m off for a short trip to Marrakesh later this week, temperatures will be well above 40°c while I’m there.  No wonder the flights were cheap!

Have a great day…

-  18.30 BoC minutes

-  19.00 FOMC rate announcement

-  19.30 FOMC press conference

-  02.30 AUS building permits

-  07.00 German GDP