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On August 14th, short-term U.S. Treasury bonds rose as weak July retail sales data further eroded market expectations for a Federal Reserve rate hike in the coming months—an expectation already precarious based on employment and inflation data. The gains briefly pushed the yield on the two-year Treasury note below 4.10%, its lowest level since June 30th. The gains were limited to shorter-term bonds more sensitive to changes in the Feds policy outlook, with 10- to 30-year yields rising slightly on the day. "This is a disturbing update on the overall health of consumers," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. "This will provide a reason for the Fed to pause rate hikes next month." Short-term interest rate contracts, which show expectations for the Feds rate decisions, indicated that traders are unwinding bets on a September rate hike and more than one rate hike by mid-2027. The fading of expectations for Fed tightening accelerated over the past week, beginning on August 7th with weaker-than-expected July employment data, and continued this week with dovish July consumer and producer price data.On August 14, Democratic Senator Elizabeth Warren demanded that Treasury Secretary Bessett explain the Trump administrations basis for intervening in the yen, continuing the veteran senators consistent practice of scrutinizing the Trump administrations foreign exchange policies. In a letter dated August 13, Warren wrote, "To date, the administration has not provided detailed justification for this intervention, nor has it formally disclosed how much taxpayer-related funds were used to purchase yen." Following the action taken on July 31, Bessett confirmed media reports of the first joint US-Japan intervention in the foreign exchange market since 1998 to support the yen, but has not yet specified the amount of funds used.On August 14th, 2026, the Jiaxing Meteorological Observatory issued a yellow rainstorm warning signal at 21:25: Affected by strong rain clouds, the rainfall in Xincheng Town, Xiuzhou District, has exceeded 30 mm in the past hour. Heavy rainfall is expected to continue in Wangjiangjing Town and Xincheng Town of Xiuzhou District over the next 3 hours, with accumulated rainfall exceeding 50 mm. At 21:40 on August 14th, 2026, the Jiaxing Meteorological Observatory upgraded the yellow rainstorm warning signal to a red rainstorm warning signal.August 14th - U.S. consumer confidence fell for the first time in three months as households worried about deteriorating business conditions and rising inflation. According to data released Friday by the University of Michigan, the preliminary reading of the consumer confidence index for August fell to 51, down from the final reading of 55.2 in July. The median forecast from economists was 55. Consumers expect prices to rise 4.3% over the next year, a slight increase from the previous month and significantly higher than levels before the outbreak of the conflict with Iran in February. They also expect prices to rise at an annualized rate of 3.3% over the next five to ten years. After two consecutive months of improvement, consumer confidence in both the short-term and long-term economic outlook deteriorated. Consumer expectations for the labor market have changed little since the beginning of the year. The survey showed that consumers are increasingly worried about inflation, while concerns about unemployment have declined. The survey covered responses collected between July 28th and August 10th. During this period, the national average gasoline price hovered above $4 per gallon. Another report released Friday showed that U.S. retail sales in July saw their biggest drop in more than a year, as consumers reduced purchases of cars and online stores.On August 14th, according to South Korean media reports, SK Hynix significantly increased its equipment investment and R&D spending in the first half of this year to meet the growing demand for AI-specific storage. Cash expenditures for acquiring tangible assets exceeded 18 trillion won, an increase of over 70% compared to the same period last year. According to SK Hynixs semi-annual report released on the 14th, on a consolidated basis, the companys cash expenditures for acquiring tangible assets in the first half of this year were 18.3288 trillion won, a 72.7% increase compared to 10.6157 trillion won in the same period last year. R&D investment also increased significantly. Total R&D expenditures in the first half of this year were 6.0428 trillion won, a 98.4% increase compared to 3.0456 trillion won in the same period last year. Of this, 5.8163 trillion won was used for ongoing development costs. With the increasing demand for AI-specific high-bandwidth memory (HBM), server DRAM, and enterprise-grade solid-state drives (SSDs), SK Hynix is accelerating the expansion of its production facilities.

GBP/USD fell to levels not seen in two years due to recession fears and pre-NFP instability

Alina Haynes

Sep 02, 2022 14:44

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The U.S. labor market report for August is the most crucial report of the month. After hitting a two-year low the day before, the British pound stabilized in the 1.1540-1.1550 region throughout Friday's Asian session. Despite impending recessionary fears in the UK, the Cable pair typifies the typical pre-NFP fluctuations.

 

As Bloomberg reports, "the United Kingdom is already in a recession, and inflation is likely to reach 14% later this year," citing BCC data. Unless the next prime minister takes "urgent" action to decrease skyrocketing energy bills, a coalition of groups called "End Fuel Poverty" has warned that the number of UK families in fuel poverty would more than double in January, to at least 12 million.

 

British Foreign Minister and potential future Prime Minister Liz Truss recently stated in a late Wednesday Sun article that she will provide "immediate support" to ensure that households do not incur excessive heating costs this winter.

 

In addition to high US Treasury yields, improved US data and hawkish Fed predictions acted as a drag on the GBP/USD exchange market.

 

President of the Atlanta Fed, Raphael Bostic, meanwhile, has said that the Fed still has a "long way" to go before inflation reaches 2%. As other conservative US central bankers have said, "Restoring price stability is our top aim," so has Lory Logan, the recently appointed president of the Dallas Fed.

 

The statistics for August showed that the US ISM Manufacturing PMI came in at 52.8, beating market expectations of 52.0. As a plus, the final S&P Manufacturing PMI index for August was 51.5, up from 52.2 in July and above the consensus estimate of 51. Similarly, the number of initial claims for unemployment insurance in the United States fell to 232k from 248k in the prior week and 237k the week before that. In addition, during the second quarter (Q2), Unit Labor Cost climbed by 10.2% QoQ, which was somewhat higher than the predicted growth of 10.7%; nevertheless, Labor Productivity fell by 4.1% QoQ, which was lower than the expected decline of 4.5% and the decrease of -4.7% in the first quarter.

 

Despite a mixed day on Wall Street, 10-year US Treasury rates rose to their highest levels since late June. And most significantly, the two-year equivalent hit a 15-year high. The CME's FedWatch Tool now predicts a 72% chance of a rate hike of 75 basis points in September, up from about 69% previously.

 

On the other hand, the Bank of England's (BOE) Decision Maker Panel survey of CFOs showed on Thursday that British companies' expectations for CPI inflation rose in August. Also, as reported by Reuters, a monthly survey by Citi and YouGov revealed on Wednesday that British people' expectations for average inflation over the next five to ten years skyrocketed to a record-high 4.8% in August, well over the Bank of England's inflation aim of 2%.

 

Expectations for August's Nonfarm Payrolls (NFP) and Unemployment Rate reports have dropped from 528K and 3.5%, respectively, to 300K and 3.5%, which is likely to cause worry in the markets. If the jobs report shows improved numbers, the possibility of future US dollar strength cannot be ruled out.

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