ECB: Outgoing Bank of Portugal Governor Centeno Goes Out On A Dovish Note
Highlight from Bloomberg's interview with outgoing Bank of Portugal Governor Centeno:
- "We can look through below-target inflation for a few quarters, but at some point we will have to do something, also to avoid a de-anchoring of inflation expectations if it is for too long below target,”...“Delivering inflation sustainably below target is not our goal and wouldn’t be in line with our mandate.”
- "Under the current scenarios, I see inflation below 2% in 2028, which is the medium-term from the December projections on"
- "Growth is below potential and inflation will soon fall below our target and stay there for some time,”....“I still believe that it’s more likely than not that we have to ease monetary policy further.”
A reminder that Centeno's term as Bank of Portugal Governor has ended, and his replacement (Pereira) has come across somewhat less dovish, and more balanced, than his predecessor. Centeno was well known to be one of the GC's most dovish members.
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FOREX: UK Inflation Favours GBP, But No Range Break Yet
- UK inflation data came in hotter-than-expected, with an outsized contribution from services inflation helping boost the headline print to 3.8%. This leaves the UK with one of the highest core rates of inflation in the G10, and while much of the pressure stemmed from seasonality (airfares in particular), it still relieves pressure on the MPC to lean further on this year's easing cycle. That said, market moves have been generally contained. Year-end SONIA pricing factored out around 1bps of BoE rate cuts (now at ~12bps), and pressured EUR/GBP to daily lows of 0.8609 as a result.
- NZD slips against all others in G10 on the RBNZ rate decision for August. The bank cut rates by 25bps, but more importantly triggered NZD sales by signalling deeper rate cut below neutral - pressing markets to price in a greater likelihood of 50bps of further cuts into year-end. NZD/USD made light work of the 0.5833 200-dma support in the initial reaction, having already cleared 0.5847. 0.5803 marks the next downside level: the 50% retracement for the rally off the April low.
- The USD Index has crept to a new weekly high at 98.441 despite the GBP rally. Prices continue to edge higher as markets appear to be adopting a more neutral position headed into Friday's Jackson Hole appearance from Chair Powell. Despite Trump's renewed criticism of Powell's approach to policy overnight (this time, Trump highlighted the issues for the housing market from high rates), there remains a risk that Powell pushes against the urgency of easing in September - any suggestion of which would work against the 21bps of cuts currently priced, and favour the dollar.
- Fed minutes due Wednesday will be carefully watched for the conversation around rates and, in particular, any clues as to whether further FOMC members came close to dissenting alongside Bowman and Waller at the most recent rate decision. While today's Fed release will be of importance, it's Powell's appearance at Jackson Hole on Friday that'll likely be of more market interest.
MNI: EUROZONE JUL FINAL HICP +0% M/M, +2% Y/Y
- MNI: EUROZONE JUL FINAL HICP +0% M/M, +2% Y/Y
- EUROZONE JUL FINAL CORE HICP -0.2% M/M, +2.3% Y/Y
- EUROZONE JUL FINAL SERVICES HICP +1.1% M/M, +3.2% Y/Y
COMMODITIES: Bullish Theme in Gold Intact, Despite Recent Pullback
WTI futures remain in a clear bear cycle and the contract continues to trade closer to its recent lows. A key support at $61.99, the Jun 30 low, has been breached, strengthening a bearish theme. A continuation lower would open $57.71, the May 30 low. Key short-term resistance has been defined at $69.36, the Jul 30 high. Clearance of this level would cancel a bear theme. Initial resistance to watch is $63.91, the 50-day EMA. Despite the latest pullback, a bull cycle in Gold remains intact. Moving average studies are in a bull-mode position. The sideways trend that has been in place since the Apr peak appears to be a corrective phase - a pause in the uptrend. A resumption of gains would open $3439.0, the Aug 23 high. Key resistance and the bull trigger is at $3500.1, the Apr 22 low. On the downside, first support to watch lies at $3268.2, the Jul 30 low.
- WTI Crude up $0.65 or +1.04% at $63
- Natural Gas down $0.01 or -0.51% at $2.753
- Gold spot up $9.3 or +0.28% at $3324.81
- Copper up $0.05 or +0.01% at $449.05
- Silver down $0.34 or -0.91% at $37.0265
- Platinum up $0.37 or +0.03% at $1315.4
