No US/Iran Resolution In Sight Ahead Of The Fed' Warsh Speech at Jackson Hole

OVERVIEW : Thursday, August 27th, 26’

Markets turned marginally defensive as US-Iran tensions hardened, with Oman reportedly stopping cooperation with the US on escorted tanker movements through southern Hormuz and Iran reiterating that hostile-country vessels are not permitted to enter the region. The White House said no negotiations are currently taking place and that all options remain on the table, while reports suggested the Trump administration has little interest in returning to the terms of the June MoU and is willing to wait and see whether continued economic pressure forces Iran to compromise. Crude reversed earlier losses and moved into positive territory, with WTI and Brent supported as the risk of a prolonged Hormuz disruption increased. Gold remained flat on the day, equities were more mixed, with Nvidia outperforming following a beat on estimates and a stronger-than-expected FY28 growth outlook. Focus remains on tomorrows Jackson Hole Fed’s Warsh speach.

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US DOLLAR

USD with choppy price action on the day, ultimately little changed, with Fed speakers failing to provide much of a fresh catalyst despite Hammack taking a relatively hawkish tone, saying the latest inflation data was as expected, that now is the time to act and that policy is not restrictive for the economy. Overall, the rhetoric did little to shift expectations, leaving the market looking past the comments and keeping focus on Fed Chair Warsh’s speech at Jackson Hole tomorrow. US data was mixed, with both initial and continuing jobless claims coming in below expectations, while the advance goods trade deficit widened significantly to USD 118.8bln vs. USD 99bln expected

Data:

  • US Continuing Jobless Claims (Aug/15) 1778.0K vs. Exp. 1790K (Prev. 1796.0K).
  • US Initial Jobless Claims (Aug/22) 203.0K vs. Exp. 208K (Prev. 207.0K).
  • US Goods Trade Balance Advance (Jul) -118.80B vs. Exp. -99B (Prev. -101.41B).


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EURO

EUR was subdued on the day, with ECB commentary providing little fresh direction despite some hawkish elements. Radev kept October and December meetings live, warning that waiting for second-round effects to become fully visible could mean acting too late, although he also noted there is not enough broad-based evidence to say growth risks are clearly to the upside. The ECB Minutes offered a more mixed signal, with members agreeing to keep rates unchanged amid high uncertainty and an incomplete inflationary impact from the energy shock. Some members would not have opposed a hike as the data since June strengthened the case for further tightening, but others argued that higher rates would not address the underlying source of the inflation increase. German GfK confidence improved to -26.6 vs. -29.6 expected,

Data:

  • German GfK Consumer Confidence (Sep) -26.6 vs. Exp. -29.6 (Prev. -29.4).
  • European Loans to Households (Jul YY) 3.1% vs. Exp. 2.9% (Prev. 3%).
  • European Loans to Companies (Jul YY) 4.4% (Prev. 4.0%).
  • French PPI (Jul YY) 3.40% (Prev. 2.80%).
  • French PPI (Jul MM) 1.1% (Prev. -0.4%).


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GREAT BRITISH POUND

GBP was weighed on the day, with a light UK data calendar leaving Sterling without much in the way of fresh domestic catalysts. The recent support from UK carry and relative resilience therefore struggled to translate into further upside.

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AUSTRALIAN DOLLAR

AUD continued to outperform on the day, with the hotter-than-expected CPI print yesterday continuing to support demand as markets further reprice the chances of a September RBA hike. NAB has now moved to expecting the RBA to resume hiking rates at the September meeting, reinforcing the recent repricing and adding further support to AUD.

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CANADIAN DOLLAR

CAD remained weighed on by the ongoing trade war with the US, with the lack of open channels between the two sides keeping the broader trade backdrop negative for the Loonie. Greer also warned that the US would not simply accept further Canadian retaliation, adding to the uncertainty around the trade relationship. The rebound in oil prices provided some support to CAD on the day, helping the currency recover from earlier pressure and close marginally firmer. The stronger Canadian current account at CAD 8.8bln vs. -CAD 2bln expected

Data:

  • Canadian Current Account (Q2) 8.8B vs. Exp. -2B (Prev. -8.3B).


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NEW ZEALAND DOLLAR

NZD had choppy price action on the day, with the lack of fresh drivers leaving the Kiwi more exposed to shifts in the broader risk backdrop, with single currency closing relatively flat on the day.


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JAPANESE YEN

JPY remained worst performer on the day, with the hawkish comments from BoJ Deputy Governor Himino failing to translate into stronger Yen demand. While he reiterated that the BoJ should continue to raise rates and warned that delaying hikes could eventually force more aggressive tightening, the comments were not as reassuring as expected, limiting the market reaction.

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SWISS FRANC

CHF caught some demand on the back of a weaker USD, with the Franc finding some support as broader Dollar flows turned softer. The move, however, lacked enough momentum to translate into a stronger CHF move with safe haven closing flat.