New Zealand dollar trades below US$0.59 

Key Movers

The Federal Reserve's benchmark, short-term rate, has held a 23-year high of 5.25% to 5.5% since July 2023. This pause follows aggressive rate hikes dating back to March 2022, a period in which the Central Bank raised rates 11 times. The goal, at that time, was to make borrowing more expensive to cool down the economy and surging inflation. After its two-day meeting on Wednesday, the Fed is expected to maintain current interest but may signal potential policy easing as soon as September.

The U.S. rate futures market has fully priced in a rate cut in September. Lower interest rates reduce the opportunity cost of holding the non-yielding bullion. Traders are also anticipating key US data this week. Nonfarm Payrolls are expected to increase by 175,000 jobs in July, down from 206,000 in June. The Unemployment Rate is projected to remain steady at 4.1%, matching 2021 highs. Additionally, Average Hourly Earnings are forecasted to rise by 0.3% month-over-month.

The British pound continues to weaken as market speculation for the Bank of England (BoE) to begin reducing interest rates from the August meeting, which will be announced on Thursday, has improved further. Trades see a little over 58% chance that the BoE will cut its key borrowing rates by 25-basis points (bps) to 5%, Reuters reported.

The United Kingdom’s (UK) annual service inflation remained higher at 5.7% in June than the bank’s forecast of 5.1%. While the odds of a cut in borrowing have shortened, with a narrow majority of Citi analysts expecting a reduction, few outside the Square Mile believe a change is imminent. The Bank has a mandate from parliament to maintain inflation at about 2% over the longer term. And while the consumer prices index was 2% in May and June, there was concern that wage pressures would reverse the trend.