Fed Bostic was on the wires yesterday afternoon stating that he is pencilling in a rate cut in the third quarter of this year followed by a pause to assess how a rate cut will affect the economy. Current market pricing suggests an 80% chance of a rate cut in June with subsequent cuts in September and November. As a result, USD reversed some of the earlier losses suffered during European trading hours. GBP had a good day putting on gains across the board ahead of the Spring Budget on Wednesday.
*Daily move - against G10 rates at 7:30am, 05.03.24
** Indicative rates - interbank rates at 7:30am, 05.03.24
Final PMI numbers today should have minimal impact on FX flows unless, as ever, there are any major revisions to initial estimates. ISM services from the US will be a key barometer for the resilience of the US economy ahead of Friday's job numbers. Last week ISM manufacturing came in lower than expected putting pressure on USD. Similar in the services and we could see an attempt for recent highs to be tested on GBPUSD and EURUSD.
Away from markets, it's Super Tuesday in the US, where 15 states will be holding Republican and Democratic primaries. If price action from this year is anything to go by, anything to suggest that Donald Trump is on course to clinch nomination then that could be USD positive.
ISM services is the main data point for markets to focus on this morning and what this means for the resilience of the US economy. The job component may well be looked at to give a measure of inflationary pressures as well, so we look to see what effect this print will have on rate expectations considering Bostic’s comments yesterday that he believes the Fed should pause after their rate cut to see what ramifications this will have on the economy.
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