Weekly economic commentary: ECB continues carefully along its rate cut path

Wells Fargo Research Team Wells Fargo

Summary

United States: Firmer inflation tilts the scales toward 25

The core Consumer Price Index rose 0.3% in August, the fastest increase in four months. Soft measures like NFIB price plans continue to signal a downward trend in inflation; however, recent price resiliency may prompt FOMC members to exercise a bit more caution in September.
Next week: Retail Sales (Tue.), Industrial Production (Tue.), Existing Home Sales (Thu.)

International: European central bank continues carefully along its rate cut path

The European Central Bank (ECB) cut its Deposit Rate by 25 bps this week to 3.50%, as widely expected. Considering somewhat balanced commentary on economic developments in the policy statement, upwardly revised core inflation forecasts for this year and next, and some hawkish-leaning comments from ECB President Christine Lagarde in the post-meeting press conference, we remain comfortable with our view for the ECB to take a cautious approach to rate cuts.
Next week: China Retail Sales, Industrial Production (Sat.), Bank of England (Thu.), Bank of Japan (Fri.)

Interest rate watch: Let the easing begin

The FOMC is widely expected to kick off the long-awaited easing cycle at its meeting next week. Looking ahead to the September 17-18 meeting, we see three key developments.

Credit market insights: Uptick in consumer borrowing in July

Total consumer credit increased $25.45B in July, the most since November 2022. The increase in consumer borrowing over the month shows that the consumer continues to rely on credit to maintain their levels of spending. That said, the trend in borrowing has continued to downshift this year, suggesting that consumers may be feeling the pinch of higher rates.

Topic of the week: A (Labor) force to be reckoned with

In celebration of Hispanic Heritage Month, which kicks off this Sunday, we dive into the significant contributions that the Hispanic and Latino community has made to U.S. labor force growth over the past decade.

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Wells Fargo Research Team

Wells Fargo

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.