EUR & USD still buying?

How “contagious” are Sintra’s hawks?

The stable USD overnight looks dull but may simply reflect the offsetting influence of different powerful forces yesterday, there was a series of strong data coming out of the United States. This included positive surprises in durable goods orders, new home sales, consumer confidence, and the Richmond Fed manufacturing index. As a result, the question arose whether the USD should strengthen due to the implications of higher interest rates or weaken because the safe-haven appeal diminishes as the risks of a US recession decrease.

The data had a positive effect on the US equity market, creating a favourable atmosphere that carried over to Asia and Europe overnight. However, the outlook for the US equity market opening was dampened by reports from the Wall Street Journal suggesting potential new restrictions on US tech trade with China. This offset the earlier "risk-on" sentiment and had an impact on the strength of the USD.

With the ECB’s conference at Sintra in full swing, there is no shortage of ECB rhetoric according to a report from Reuters citing sources within the ECB, doubts were raised about a potential policy pause after the highly anticipated rate hike in July. Another report from Bloomberg, also based on ECB sources, focused on the possibility of a more aggressive unwinding of the balance sheet, indicating a potentially hawkish stance.

Interestingly, with numerous ECB speakers openly expressing their perspectives, there was limited need for anonymous sources behind the scenes. One thing became evident from their statements: a rate hike in July is virtually certain. Luis de Guindos even referred to it as a "fait accompli."

While the hawks maintained their position that no decision had been made regarding September, they provided enough indications to suggest that a rate hike is probable. For instance, Pierre Wunch mentioned that the decision is contingent on core inflation data, but he also expressed his belief that core inflation would not decline in the upcoming three readings.

On the other hand, a few doves presented a counterargument, stating that the full impact of previous rate hikes has yet to be fully realized. However, the prevailing sentiment at the Sintra event seems to lean towards the hawkish side.

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