Article / 29 August 2016 at 7:00 GMT

Morning Markets: September prospect fuels dollar

Former managing editor, / Saxo Bank



  • US: Personal Income & Spending         (1230 GMT)
  • US: Dallas Fed Manufacturing Index     (1430 GMT)

Federal Reserve chair Janet Yellen may have delved into her mixed-message chest to deliver yet another caveated masterclass of a speech at Jackson Hole Friday, but there was enough in there to take the prospects of a September rate hike from 22% a week ago to 42%.

The chances of a September hike at the time of the Brexit vote  on June 23 were virtually nil.

September would still look like an uncommonly cavalier move on the part of the Fed but with consumer spending expected to show strongly today, this week's nonfarm payrolls report could add the ballast that really sees the hike camp sharpen the knives. A sift through the overall Fed message over the last 10 days or so starting with Fed vice-chair Stanley Fischer indicates a subtle shift has indeed taken place. 

Ironically, dollar strength could be one of the factors that steers the Fed away from an early move given the impact on the global economy and emerging markets in particular after the MSCI Emerging Markets Index fell overnight. USDJPY was back above the 102.0 handle, EURUSD was threatening a break of the 1.12 area and GBPUSD was also pegged back to the 1.31 zone.

Elsewhere, gold continues to look over its shoulder at $1,310/oz and Brent is once again in sight of $50/barrel trading at a $3/b premium to WTI. Yields on US 10-year treasuries meanwhile stabilised during Asian hours after jumping to a two-month high in Friday's US session.

But, it is that prospect of a rate hike that is the subtext Monday morning. December still remains the more likely bet for a move, with the Fed Fund rate pricing in a 65% chance before year-end. Two hikes are priced at 17%. Saddle up folks!

Market signals

Asian session

  • The iron ore price slipped below $60 on news of a possible 2017 Samarco restart
  • Oil is trading lower following comments that Iraq will continue to ramp up output 
  • The Nikkei surged as bets on a September Fed move spurred the dollar
  • At 0530 GMT it was up 2.4% at 16,744
  • BoJ Governor says he is ready to act "without hesitation" if inflation does rise soon
  • Other Asian markets were down; the ASX200 slumped to a one-month low
  • Australian new-home sales weakened 9.7% in July
  • It is a bank holiday in the UK today

Forex ahead

  • The AUD fell against the USD after Fed comments; it was at 0.7525 in early trade
  • The USD strength pushed up USDJPY; it was trading at 102.08 in early Asian trade
  • USDJPY looking at resistance at 103.40
  • Very powerful US data needed to take USDJPY higher

From the Floor

Fed move. "If we get a strong NFP, then that 65% number for December could go to 75%", says Juhl-Larsen.

Net-long triples. "We are seeing some incredibly crazy moves in the oil speculative markets", says Hansen.

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

US consumer spending growth is expected to slow slightly but personal income growth is up, which James Picerno writes is more evidence of the consumer sector’s moderate expansion.

Inflection point?
We are at the inflection points of tactically higher moves in the USD and US rates that could potentially run for the next one to four months, says Kay Van-Petersen.

Aussie dollar down
AUD fell to a four-week low following US Fed comments about the potential for a rate rise, writes the team at Saxo Capital Markets (Australia).

Spine chiller
It was the words of Janet Yellen's deputy Stanley Fischer that sent a thrill of excitement down the spines of FX traders, writes Max McKegg.


He may be struggling to find the way, but at least USDJPY is going in his direction. Photo: iStock

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