Intel stock spikes after report of possible US government stake
US Secretary Bessent said the Fed should cut by 50bp in September, and that rates are 150-175bp above where they should be. Markets aren’t considering a 50bp move as an option, and we doubt they will unless there are hints in that direction from Fed members or if the jobs data falls much further. Today, Norges Bank should hold rates, with some minor hawkish risk
USD: Limited USD Spillover from Bessent’s Fed Comments
Treasury Secretary Scott Bessent’s comments on the Fed yesterday added fuel to dovish Fed bets. The USD two-year swap rate fell another 6bp yesterday to just under 3.40%, around 10bp below pre-US CPI. Bessent said the Fed’s rate should be 150-175bp lower, and that the September cut should be 50bp. Markets aren’t pricing in anything over 25bp for now, and a 50bp option would probably not be taken seriously unless there are some hints in that direction at the Jackson Hole symposium (21-23 August), or August jobs data hugely disappoints again.
The US dollar had already started the day on the back foot yesterday, and it seemed unfazed by Bessent’s Fed comments. What might have helped the greenback was Bessent’s disagreement with EJ Antoni’s idea to reduce the frequency of jobs reports.
Today’s highlight is July’s PPI, which is expected to have risen by 0.2% both on the headline and core series. That should reinforce markets’ view that the inflation bump is tolerable from a Fed perspective. The other release we’ll watch is continuing claims, which spiked to 1974k last week.
The proximity to tomorrow’s Trump-Putin meeting might argue against adding much more USD shorts just yet. But the bias remains unequivocally negative for the greenback.
EUR: Good Momentum into Trump-Putin Summit
EUR/USD is approaching tomorrow’s US-Russia summit with good momentum, and the option market does not seem to be pricing in major volatility risk. One-week EUR/USD implied volatility is at the bottom of its recent range and in line with historical volatility.
Today, the eurozone calendar includes the second 2Q GDP release. The advanced print was 0.1% QoQ, although markets gave it limited weight given the heavy tariff distortion. Eurozone industrial production figures for June are also published today: expectations are for a soft print after Germany reported a surprise -3.6% YoY figure.
EUR/USD may stabilise around 1.170 for today, with a balance of risks still skewed to the upside.
Elsewhere in Europe, the UK published stronger-than-expected growth figures for 2Q: 0.3% QoQ and 1.2% YoY. That shows decent underlying activity growth despite the tariff-induced downward distortion. It’s positive news for the gilt market ahead of the Autumn fiscal event, but it doesn’t change the narrative for the Bank of England at this moment (inflation and jobs markets are the two main inputs), hence the reaction in sterling has been muted.
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