Scotiabank strategists Shaun Osborne and Eric Theoret highlight a mixed US Dollar (USD) as markets weigh rising Oil prices, Japanese Yen (JPY) strength, and escalating US trade tensions. They underscore growing political pressure on the Federal Reserve (Fed) to cut rates, even as swaps still price around a 60% chance of a 25 bps hike at the September meeting, with upcoming United States (US) Producer Price Index (PPI) and Consumer Price Index (CPI) data seen as decisive for policy.
Fed path and trade tensions key
“The USD is mixed as markets mull rising oil prices—Brent is nearing $100 following attacks on Saudi oil infrastructure—soft stocks and firmer US yields (as well as a slightly steeper Treasury curve). “
“Trade tensions are also rising, with President Trump on social media over the past few days to take aim at Canada as Ottawa imposes counter-tariffs. The president also appeared to threaten a broader trade war unless the Fed cut interest rates in a post last Friday following the strong jobs data as the administration’s pressure campaign for lower rates appears to be stepping up a gear. VP Vance also suggested the Fed should ease policy last week.”
“Economic orthodoxy is keeping the Fed hawks concerned, however, with Cleveland Fed President Hammack squeezing in one last call for tighter policy Friday ahead of the FOMC blackout. This week’s inflation data will be decisive in the run into the September 16th policy decision.”
“Warsh said he wants progress towards 2% “with speed” while Waller and Williams both suggested there were signs of disinflation, obviating the need for higher rates right now.”
“Signs of progress on inflation need to be clear in this week’s PPI (Thursday) and CPI (Friday) for a Fed to hold. Swaps continue to lean towards the idea of a hike, with OIS pricing in around 60% chance of a 25bps tightening move next week.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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