2024-09-25 10:19

LONDON, Sept 25 (Reuters) - The pound slipped against the dollar on Wednesday, retreating from a two-and-a-half-year peak a day earlier, as investors turn their focus to next month's British budget and the Bank of England's interest rate decision due eight days afterwards. Sterling fell 0.30% to $1.33725, marking a break after five consecutive days of gains. "I think sterling is perhaps facing quite a difficult hurdle in the shape of the October 30th UK budget," said Jane Foley, senior forex strategist at Rabobank, as there is a clear anticipation that the country will face more tax hikes. "It does feel that investor sentiment has perhaps become more worried about the possibility of tax hikes in this budget." Uncertainty about the policy direction of Britain's newly elected Labour government might be holding back business investment and consumer spending, Bank of England Monetary Policy Committee member Megan Greene said on Wednesday. Finance minister Rachel Reeves has said some taxes are likely to rise when she sets out her first budget on Oct. 30. The BoE last week held rates and said it would be cautious about future rate cuts. Markets expect just 40 bps more of cuts by December, which would leave the base rate closer to 4.50%. Analysts at Unicredit said in a note to clients that they remained bearish towards sterling ahead of what they said was likely to be a more intense easing process by the BoE "especially next year, to cope with a further-deteriorating UK economy and tighter fiscal policy – as will likely be outlined in the UK's autumn budget". The Federal Reserve last week cut interest rates by an outsized 50 basis points and the futures market prices in at least another 75 bps in cuts before the end of the year, which would leave U.S. rates around 4.00%. Against the euro , the pound dropped to 83.6 pence after trading on Tuesday around its strongest level since April 2022. A dip is no particular surprise as sterling has appreciated "quite significantly" against the euro at the end of last week and into this one, Foley said. The prospect of a slower pace in British interest rate cuts compared to elsewhere has given sterling an edge over other major currencies. The pound is the top-performing G10 currency against the dollar this year, with a gain of 5.4%, compared with a rise of just 1.3% in the runner-up, the euro . Sign up here. https://www.reuters.com/markets/currencies/sterling-slips-against-dollar-focus-turns-uk-budget-2024-09-25/

2024-09-25 10:05

Bumper cut raises questions on how quickly inflation will decline to Fed’s target Market inflation expectations rise after 50-bp cut, financial conditions ease “Powell put” may have come too early given economic resilience, analysts say NEW YORK, Sept 25 (Reuters) - The Federal Reserve's aggressive start of the easing cycle has rekindled inflation worries in the U.S. bond market, as some investors fear looser financial conditions could re-ignite price pressures. Yields on longer-dated Treasuries that are most sensitive to the inflation outlook have risen to the highest since early September, with some investors worried that the Fed's shift in focus from beating back inflation to protecting the job market could allow for a rebound in price pressures. "I think there are questions around how quickly inflation will be able to get to the Fed's target if we're in a cutting environment, and if we're in an environment where the Fed is saying we want to support the labor market before the labor market gets weak," said Cayla Seder, macro multi-asset strategist at State Street Global Markets. She expects long-term yields, which rise when prices fall, to climb further as the market bets on stronger growth and inflation. Fed Chair Jerome Powell said last week the 50 basis point interest rate cut that kick-started the U.S. central bank's descent was a "recalibration" of rates aimed at maintaining strength in the labor market while inflation moves sustainably to the Fed's 2% goal. The Fed's emphasis on economic resilience fueled concerns that the path to lower rates could be slow and bumpy. Fed officials' forecasts on interest rates also suggested a more gradual pace in cuts than what the market anticipated. Expectations for inflation over the next decade as measured by Treasury Inflation-Protected Securities (TIPS) increased after the Fed's announcement on Wednesday, with the 10-year breakeven inflation rate rising to 2.16% on Thursday, its highest since early August. It hit a new high of 2.167% on Monday. An auction of 10-year TIPS on Thursday, after the Fed's rate-setting meeting, was lapped up by investors, with non-dealers absorbing 93.4% of the $17 billion Treasury debt sale, the highest share since January. Flows into U.S. dollar inflation-linked bonds, however, were negative in the week ending on Monday, according to LSEG data. "Investors are once again concerned with the specter of reflation," BMO Capital Markets rates strategists said in a note last week. Matt Smith, fund manager at Ruffer, said he has been adding inflation protection to his portfolio over the last few days and weeks through commodities and commodity equities, which he said are classic inflation hedges and were trading at extremely low valuations. Many in the market have fresh memories of the selloff that happened when a dovish pivot by the Fed in December was followed by months of upside surprises on inflation and employment. The Goldman Sachs U.S. financial conditions index, a measure of the availability of credit in the economy, eased over the course of this year despite interest rates remaining at their highest in over two decades. The day after the Fed's decision, it decreased to its lowest since May 2022. "We think inflation is going to remain relatively benign ... but the more aggressive the Fed cuts, the more you have to question that," said Brendan Murphy, head of fixed income, North America, at Insight Investment. FED PUT Inflation, as measured by the U.S. Consumer Price Index, has dropped sharply over the past two years. It stood at 2.5% in August, down from an over 40-year peak of 9.1% in June 2022. Fed Governor Christopher Waller said last week recent data convinced him the Fed needed to cut rates faster because it risked undershooting its 2% inflation target. With the same information at hand, however, Fed Governor Michelle Bowman said she worried the larger move could be interpreted as "a premature declaration of victory" against inflation. She dissented over the U.S. central bank's half-percentage-point interest rate cut last week and favored a quarter-percentage-point reduction instead. Should inflation continue to subside the outlook for bonds would likely remain positive, despite the volatility that comes with a repricing of the pace of interest rate cuts. But some wonder whether the central bank's aggressive cut was premature, as inflation remains above target and recent monthly data indicated some stickiness in price pressures. Referring to the so-called "Fed put" - a perceived tendency of the central bank to run to the aid of financial markets - economists at BofA Securities said in a note last week the "Powell put" came too early, given economic resilience and the stock market at record highs. "A more aggressive easing cycle could make reaching the 2% target harder," they said. Sign up here. https://www.reuters.com/markets/rates-bonds/feds-bumper-rate-cut-revives-reflation-specter-us-bond-market-2024-09-25/

2024-09-25 09:33

LONDON, Sept 25 (Reuters) - HSBC said on Wednesday it now expects the European Central Bank to cut interest rates by 25 basis points at every meeting from October through to April next year given weakening economic data. That would take the key deposit rate to 2.25%. "At this point, policy should be close to neutral or even mildly stimulative. Previously we had expected cuts every other meeting until the key deposit rate hit 2.50% in September 2025." Survey data released on Monday showed euro zone business activity as a whole contracted sharply and unexpectedly this month as the dominant services industry flatlined, boosting expectations that the ECB could cut rates again soon. The central bank, in September, delivered its second rate cut of the year. Sign up here. https://www.reuters.com/markets/rates-bonds/hsbc-now-expects-ecb-cut-rates-by-25-bps-every-meeting-oct-2024-09-25/

2024-09-25 08:27

LONDON, Sept 25 (Reuters) - The Bank of England should take a cautious approach to cutting interest rates due to the risk of longer-term inflation pressures, Monetary Policy Committee member Megan Greene said in a speech on Wednesday. "I believe a cautious, steady-as-she-goes approach to monetary policy easing is appropriate," said Greene, who voted against the BoE's decision in August to start cutting rates. At the time of its August rate cut, the BoE set out three scenarios for inflation, reflecting varying degrees of persistence in inflation. Greene said she thought the middle scenario - which was used as the basis for the BoE's main forecasts - was the most likely, but saw a greater chance of the high-persistence scenario than the low-persistence one. Some elements of services inflation had barely slowed over the past year, while wage growth remained faster than the BoE's standard economic models had predicted, she said. Greene also saw a risk that weak consumer demand could rebound by more than the central bank has predicted. "I believe the risks to activity are to the upside, which could suggest that the long run neutral rate is higher and - all else equal - our stance of policy isn’t as restrictive as we had thought," she said. Sign up here. https://www.reuters.com/world/uk/boes-greene-calls-cautious-approach-rate-cuts-2024-09-25/

2024-09-25 07:28

NEW DELHI, Sept 25 (Reuters) - Global energy major BP (BP.L) , opens new tab said on Wednesday it is holding a board meeting in India this week, as it scouts for more opportunities in the country. India, the world's third-biggest oil importer and consumer, wants to quickly raise its oil and gas output, which has been stagnant for years. In June, the government had said that the country's top exploration company Oil and Natural Gas Corp (ONGC.NS) , opens new tab was seeking a technical tie-up with a global oil major to boost production from its western offshore Mumbai High fields. "We see growing business opportunities, including through our world-class partnership with Reliance, producing the country's gas and growing our joint retail presence," BP CEO Murray Auchincloss said in a statement on Wednesday. The BP board, on a five-day visit to the country, met India's Oil Minister Hardeep Singh Puri on Tuesday. "Robust partnership between the global energy major and India which spans across the entire energy value chain including exploration and production, biofuels, fuel retail and other emerging areas will continue to grow further," Puri said , opens new tab in a post on social media platform X. BP, in a tie-up with Reliance Industries (RELI.NS) , opens new tab, operates 1,900 fuel retail stations across India and produces oil and gas from a deepwater block in the Krishna-Godavari basin, off the country's east coast. The Reliance-BP tie-up has teamed up with ONGC to bid for exploration rights for an offshore block in India, according to the website of India's upstream regulator the Directorate General of Hydrocarbons. "By leveraging our combined experience and expertise with our partners, we aim to facilitate the secure, affordable, and lower carbon growth of India's energy resources to meet the increasing demand," BP Chairman Helge Lund said. Sign up here. https://www.reuters.com/business/energy/bp-scouts-opportunities-india-hold-board-meeting-2024-09-25/

2024-09-25 06:20

MUMBAI, Sept 25 (Reuters) - The Indian rupee rose on Wednesday, hovering near a keenly-watched resistance level, helped by the U.S. dollar's struggles in the wake of the rally in the Chinese yuan and mounting expectations of a follow-up large Federal Reserve rate cut. The rupee was at 83.5350 at 11:34 a.m. IST, up from 83.67 in the previous session and just shy of the 83.50 handle that market participants are intently watching. Last Friday, the rupee briefly rose above 83.50, but was pegged back by dollar outflows and hedging by importers. The 83.40-83.50 region will be "challenging" for the rupee "to conquer", Kunal Kurani, assistant vice president at FX advisory firm Mecklai Financial, said. The dollar index breaking below 100 decisively and the Reserve Bank of India staying away will be needed to push the rupee past that region, he said. The dollar index was at 100.30, near its year-to-date lows, weighed by rising possibility that the Fed will decide on a 50-basis-point rate cut at their next meeting in November. Weak U.S. consumer confidence data on Tuesday prompted investors to push up the odds of a rate cut of that size to more than 60%. The dollar was further undermined by the upbeat Chinese yuan. The offshore yuan briefly climbed the psychologically important 7 level to the U.S. dollar and Chinese equities rallied on optimism over Beijing's stimulus measures. The stimulus will have "positive spillovers to other Asian currencies", with the economies most closely linked with China benefiting, MUFG Bank said in a note. Sign up here. https://www.reuters.com/markets/currencies/rupee-back-challenging-key-resistance-fed-boost-2024-09-25/