Pound to Dollar Rate: Sterling Under Fresh Pressure After U.S. Fed Greenlights Bank of England Cuts

Economic

Summary:

The Dollar was remarkably unfazed by the Federal Reserve's commitment to cut interest rates in September, but Pound Sterling is floundering ahead of the Bank of England decision.

The Pound to Dollar exchange rate has fallen a sizeable 0.30% in the past one-hour timeframe as markets appear to have fully discounted a September rate cut at the Federal Reserve and position for an imminent cut at the Bank of England.

"A reduction in our policy rate could be on the table as soon as the next meeting in September," said Federal Reserve Chair Jerome Powell at Wednesday's policy update. "With these words, Powell clearly opened the door to a cut in the very near term. The September cut looks like a done deal – and markets are fully priced for that outcome," says Evelyne Gomez-Liechti, Rates Strategist at Mizuho Bank.

The falling Pound suggests developments across the Atlantic are impacting the UK, confirming the market's growing confidence that the Bank of England will embark on a string of interest rate cuts.

The Fed left the target range for the federal funds rate at 5.25-5.50% and sent a clear message that interest rates could be cut as soon as the next meeting on September 18. Chair Powell's commentary was supportive of a September rate cut, saying substantial progress had been made with regard to the Fed’s dual mandate of price stability and maximum employment.

"The Fed no longer considers the labour market to be a source of inflationary pressure and is watching closely for signs of further softening," says Luca Cazzulani, Head of Strategy Research at UniCredit.

Pound to Dollar Rate: Sterling Under Fresh Pressure After U.S. Fed Greenlights Bank of England Cuts_1

Above: GBP/USD at hourly intervals, showing a sharp drop over the past 60 minutes as investors prepare for an imminent UK rate cut.

The statement said the central bank was "attentive to the risks to both sides of its dual mandate." This means the Fed thinks it can cut interest rates before inflation falls to the 2.0% target because it thinks holding rates at current levels risks raising unemployment.

This has significant implications for the Bank of England as UK policymakers would prefer to cut rates with the cover of similar cuts being made at the Federal Reserve.

This explains why market-implied odds of a Bank of England rate have steadily risen alongside rising odds of a Federal Reserve rate cut.

Heading into today's decision, currency strategists say the Pound is faced with a lose-lose outcome and should fall no matter what happens.

"Sterling might weaken against both the US dollar and the euro if the BoE were to cut the bank rate today (the implied probability of a 25bp cut is roughly 60% at present)," says Roberto Mialich, FX Strategist at UniCredit Bank.

But, a hold will also result in weakness, he says. "A steady outcome is unlikely to offer sterling much support, as markets are already positioned for the kick-off of the easing cycle from September in the UK, with 50bp of easing already priced in by December."

Pound to Dollar Rate: Sterling Under Fresh Pressure After U.S. Fed Greenlights Bank of England Cuts_2

Above: The markets see a deeper path of rate cuts than was the case back in April. Image courtesy of Goldman Sachs.

The risk for the Pound is that Andrew Bailey and his colleagues are on the cusp of an aggressive interest rate cutting cycle. If today's guidance confirms this, the selling of the Pound can continue.

"Today, we’ll find out how committed the MPC is to firmly embed low UK inflation. If it is, MPC should hold rates & not heed siren calls for rate cuts to feed the nation’s addiction to low interest rates. A cut today would seriously question the Bank’s anti-inflation credibility," says economist and former Bank of England MPC member Andrew Sentance.

Money market pricing, gleaned from the Overnight Index Swap market, shows that the probability of a hike is now over 60%.

This is up from 40% earlier in the month when markets judged strong services inflation figures would mean the Bank would have to wait until September before cutting.

The rise in odds for an August 01 cut has correlated with a steady fall in the value of the Pound from recent highs against both the Euro and Dollar.

Should the Bank proceed with a cut, further Pound Sterling weakness as the gap between reality and expectations closes fully. "A cut could thus be seen as a slightly more dovish outcome than currently expected by the markets and thus weigh on the GBP," says Valentin Marinov, Head of G10 FX Strategy at Crédit Agricole.

The risk is that the Bank delivers a cut and says it is ready to cut further. This is the 'dovish' outcome that can result in the biggest hit to GBP value.

However, currency strategists at Barclays think the downside to the Pound will be limited. "A hawkish cut by the MPC is an opportunity for the pound."

A 'hawkish' cut would involve the Bank cutting interest rates but warning it is not committed to further hikes.

"Rate differentials should not be much affected by the reallocation of cuts across the cycle, implying limited damage for the pound. Instead, demand resilience and a willingness to re-engage with the EU are far bigger positive influences for the pound, in our view, and we look to re-engage on the long side on any further weakness," says Barclays.

Source: Poundsterlinglive

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FXOpen

Forex

Late July and early August are packed with significant macroeconomic events. This week has already seen rate decisions from the Bank of Japan and the Federal Reserve, with the Bank of England meeting today and the U.S. monthly labour market report due tomorrow. As the U.S. regulator left the rate unchanged at 5.50% yesterday, market participants will now focus on incoming macroeconomic data for further clues on the Fed's future policy.

GBP/USD

Ahead of today's Bank of England meeting, the GBP/USD pair remains firmly above the significant support level of 1.2820. The price has tested the 1.2820-1.2800 range three times in recent sessions, so far without breaking through.

Technical analysis of the GBP/USD pair indicates potential for continued growth towards June highs if it holds above 1.2900. A break below 1.2800 could lead to a downward correction towards the crucial range of 1.2700-1.2600.

Key events that could influence GBP/USD pricing:

· Today at 14:00 (GMT+3): Bank of England's interest rate decision (experts predict a 0.25% rate cut).

· Today at 15:30 (GMT+3): Release of the U.S. initial jobless claims.

· Today at 16:45 (GMT+3): Release of the U.S. Manufacturing PMI for July.

USD/JPY

The Bank of Japan recently surprised the market by raising its base rate to 0.25%, deviating from its long-standing ultra-low rate policy. The market was unprepared for this development, and the USD/JPY pair broke several key supports throughout the day, now trading below 150.00.

Tomorrow's employment report could lead to the following scenarios:

· Positive NonFarm Payrolls could push the price up to 151.90-150.80.

· A break below 148.40 could intensify downward pressure on the pair, potentially leading to a test of the 147.00-146.50 range.

Market Reacts Mildly to Fed Decision, Focus Shifts to NonFarm Payrolls_2

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Warren Takunda

Economic

Japan's benchmark Nikkei Stock Average plummeted on Thursday as the yen strengthened to a four-month high, weighing on export-heavy sectors such as automobiles following key U.S. Federal Reserve and Bank of Japan announcements.

The average plunged 3.5%, or 1,363.94 points, to 37,737.88 at one point during Tokyo trading hours as the yen jumped to the 148 level, the highest since mid-March.

The average ended morning trading at 38,094.24, down 2.6%, or 1,007.58 points, from the previous day's closing.

The export-heavy automobile sector took a hit. Honda and Subaru dropped 5.2% and 8.8% respectively at one point. Toyota, which also received a corrective order by the government on Wednesday and holds earnings calls Thursday, dropped 7.2%.

Services benefiting from inbound spending also took a blow. Department store operator Isetan Mitsukoshi Holdings dropped 11.7%.

"Reversals are in effect in the market," said Tomochika Kitaoka, chief equity strategist at Nomura Securities. Japan's Nikkei Average Drops 3.5% as Yen Jumps to 148 Per Dollar_1

Japan's Nikkei Average Drops 3.5% as Yen Jumps to 148 Per Dollar_1

"Stocks that benefit from a weak yen, such as automobiles, are being sold, while those that benefit from a stronger yen, such as importer stocks and 100-yen store stocks, are reluctant to fall."

Kitaoka, however, said that the market may be "responding too much" and that moves may change by tomorrow.

The yen hit 148.48 to the dollar, a high last recorded in mid-March during Tokyo trading hours.

The currency jumped to the 149 level to the dollar during New York trading, hitting a four-month high. It persisted after the Federal Reserve said that it will hold rates steady. That being said, Fed Chair Jerome Powell noted that a September rate cut "could be on the table."

The event followed Bank of Japan Gov. Kazuo Ueda's hawkish news conference on Wednesday, when he said he is open to future rate hikes, shortly after the central bank announced that it will raise rates by 0.25%.

"The relief in selling the yen has now completely vanished," said Yukio Ishizuki, senior foreign exchange strategist at Daiwa Securities. He said the yen's appreciation is largely due to Ueda's press conference, rather than the Federal Open Market Committee.

"Until the first half of July, the Bank of Japan was considered the most dovish central bank in the world. ... That has [changed] with Ueda's presser."

Source: NikkeiAsia

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Warren Takunda

Economic

The Federal Reserve refrained from cutting interest rates Wednesday but its rate-setting Federal Open Market Committee did lay the groundwork for a possible, initial reduction at its next meeting in mid-September.

Chair Jerome Powell and his fellow monetary policymakers hinted that they are headed toward an initial rate cut in coming months, possibly as soon as September, but they stopped short of giving a strong or assertive near-term monetary easing signal.

The FOMC repeated that it won’t cut rates until it gains “greater confidence” that inflation is headed “sustainably” to 2%, but its policy statement contained other changes suggesting greater concern about the “maximum employment” side of the Fed’s “dual mandate, as well as greater comfort with “progress” toward its inflation target.

Powell told reporters the Fed is “getting closer to a point where it will be appropriate to dial back restriction” due to a combination of better inflation data and softer labor market data.

Financial markets are placing high odds on a 25 basis point rate cut at the FOMC’s Sept. 17-18 meeting, with more reductions to follow. but Powell stopped short of sending a definitive signal on the timing or amount of second half rate cuts.

He did say a rate cut may well be “on the table” at that meeting, but said “we’re not there yet” and noted that a lot of important data will be coming between over the next six weeks.

He strongly denied that the timing of the Nov. election will influence the decision.

Despite mounting pressure on the Fed to lower short-term interest rates, the FOMC left the federal funds rate in a target range of 5.25% to 5.50% for an eighth straight meeting after raising that key money market rate 525 basis points between March 2022 and July 2023. But the FOMC made significant changes to its policy statement, which suggest rates are about to start moving in the opposite direction before too much longer.

A key policy sentence was left unchanged. As before, the FOMC said it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.”

However, the FOMC seemed to soften that assertion by altering its preceding characterization of economic conditions in notable ways.

In its latest statement, the FOMC says, “Job gains have moderated, and the unemployment rate has moved up but remains low. Inflation has eased over the past year but remains somewhat elevated. In recent months, there has been some further progress toward the Committee’s 2% inflation objective.”

By contrast, the June 12 statement had put less emphasis on labor market softening and inflation progress: “Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been modest further progress toward the Committee’s 2 percent inflation objective.”

The July 31 language, though not dramatically different, sounds somewhat more upbeat about the inflation outlook and less upbeat about the labor market’s prospects.

Powell reinforced that basic message in his post-FOMC press conference, saying that, on the one hand, “good data” on inflation has made Fed policymakers “more confident” it is headed to 2%, while, on the other hand, the labor market is “cooling.”

Powell said he “would not like to see further cooling of the labor market,” before amending the comment to say he wouldn’t want to see any “material cooling.”

He said the labor market is “normalizing” in ways the FOMC had hoped it would and said he and his colleagues will be ‘watching closely to see if it’s more than that.” If so, he vowed, the Fed “will respond.”

Powell said the Fed doesn’t want to ease “too late” and risk hurting the economy and employment but said it is “well-positioned to respond” if the labor market does weaken more than expected. So far, he said, unemployment remains “historically low” at 4.1%.

“What we’re thinking is how do we keep this (combination of moderating inflation and normalizing labor markets) going?” he said. “The job is not done on inflation, but we can afford to begin to dial back the restriction.’

How much the Fed will cut rates remains unclear. In their June Summary of Economic Projections, FOMC participants projected just one rate cut this year to a median 5.1% (5.0% to 5.25%), but officials were closely divided, with eight of the 19 projecting two rate cuts this year. Next year, the funds rate was projected to fall to a median 4.1% (4.0% to 4.25%).

Addressing that very issue, Powell said “we’ve made no decisions about future meetings including September,” but he said, “the economy is moving closer to the point where it will be appropriate to reduce the policy rate.”

He noted the FOMC will compile a new set of rate projections when it publishes a revised, quarterly SEP in September. Meanwhile, he said the Fed will be evaluating a wide variety of data.

Powell stressed the exact timing will be “data dependent…The question will be whether the totality of the data and the outlook for the balance of risks is consistent with” rate cuts.

He added that an initial rate cut could be “on the table as soon as September. We’re getting closer to where it will be appropriate to reduce our policy rate.”

But he added, “we’re not quite there yet.”

Powell suggested that a September rate cut would become more likely “if we were to see inflation moving down quickly or in line with expectations…,” but said “if inflation were to remain stickier … we would weigh that.”

As reporters continued to probe the odds of a September rate cut, Powell welcomed better second quarter inflation data, but said “we need to see more to have confidence we’re on a path down to 2%,…but our confidence is greater, because we’ve been getting good data…It looks like an economy that’s normalizing…”

Powell said a slowing of demand that has cooled both inflation and formerly “overheated” labor markets proves that monetary policy is “restrictive,” and he reiterated that “the time is coming … at which it will begin to be appropriate to dial back the level of restriction so we can address both mandates.”

An initial rate cut could come “as soon as the next meeting, depending on how things come in,” he went on. “We think the time is approaching, and if we do get the data we hope we get a reduction could be on the table at the September meeting.’

While holding rates steady, the FOMC reaffirmed its policy of “reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.” This means the Fed will continue to moderate the pace of so-called “quantitative tightening” or balance sheet shrinkage.

At its May 1 meeting, the FOMC announced that, beginning in June, it would reduce its securities portfolio by $60 billion per month instead of by $95 billion per month by allowing fewer maturing Treasury securities to roll off the balance sheet. It authorized the New York Fed to roll over at auction the amount of principal payments from the Fed’s holdings that exceeds a cap of $25 billion per month – down from $60 billion. It left unchanged the amount of MBS reinvestments at $35 billion.

Speculation has mounted that the FOMC will soon end QT altogether and stop shrinking its balance sheet. But Powell did not address this issue. Nor was he asked about it.

The July meeting took place against the backdrop of favorable data.

The price index for personal consumption expenditures, the Fed’s preferred inflation gauge, rose by 0.1% in June or 2.5% from a year earlier, as the Commerce Department reported Friday. The core PCE index was up 0.2% and 2.6% respectively. The Labor Department had previously reported that the consumer price index fell 0.1% in June, leaving it 3% higher than a year ago. The core CPI was 3.3% higher.

Meanwhile, labor market conditions have been softening. Although non-farm payrolls rose a respectable 200,000 in June, the unemployment rate rose another tenth to 4.1%, compared to 3.4% at the start of last year. The closely watched job vacancy-unemployment ratio has fallen from 2.0 to a pre-pandemic 1.2. Wage gains have moderated, as shown Wednesday by a June dip in the Employment Cost Index.

Economic activity “has continued to expand at a solid pace,” as the FOMC statement reiterated. The Commerce Department estimates that real GDP at a 2.8% annual rate in the second quarter – up from 1.4% in the first quarter. Core PCE inflation was up 2.9% in the period.

Source: MaceNews

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Samantha Luan

Central Bank

Economic

Forex

Dollar remained relatively steady following the balanced post-FOMC press conference, with notable exceptions against the stronger yen and Swiss franc. Fed Chair Jerome Powell explicitly mentioned the possibility of a rate cut in September but refrained from making any firm commitments or providing extended guidance. While markets are aggressively betting on three Fed cuts this year, some economists view this as overly optimistic. The greenback's next moves will likely be influenced by today's ISM manufacturing data and tomorrow's non-farm payroll data.

For the week, Yen remains the strongest currency with no clear signs of a sustainable pullback. Swiss Franc is currently the second strongest, with its strength partially attributed to rising tensions in the Middle East, which have also driven up gold and oil prices. Canadian Dollar is the third strongest, benefiting from a lack of significant selling pressure.

Conversely, Euro and Sterling are at the bottom of the weekly performance chart alongside the Australian dollar. The selloff against Swiss franc is adding pressure on these two European majors. Sterling is now focused on BoE rate decision, where uncertainty about a potential rate cut looms large. The decision could trigger significant volatility in Pound and shift its position notably.

In Asia, Nikkei fell -2.49%, more than reversing yesterday's gains. Hong Kong HSI is up 0.07%. China Shanghai SSE is down -0.17%. Singapore Strait Times is down -0.91%. Japan 10-year JGB yield is down -0.0248 at 1.036. Overnight, DOW rose 0.24%. S&P 500 rose 1.58%. NASDAQ rose 2.64%. 10-year yield fell -0.034 to 4.109.

Fed's Powell opens door to Sep rate cut, markets price In 75% chance of three cuts by year-end

US stocks closed higher overnight as investors cheered Fed Chair Jerome Powell's suggestion that a September rate cut is "on the table." Nevertheless, he emphasized that any decision would hinge on the "totality" of incoming economic data.

In the post-FOMC meeting press conference, Powell highlighted that recent Q2 inflation data has "added to our confidence," and continued positive data would further solidify this confidence that inflation is moving towards the 2% target.

He explained that the committee's "broad sense" is that the economy is nearing a point where reducing the policy rate could be appropriate. The decision will depend on whether the overall data, evolving economic outlook, and balance of risks align with increased confidence in controlling inflation while maintaining a robust labor market.

"If that test is met, a reduction in our policy rate could be on the table for as soon as the next meeting in September," Powell stated. Meanwhile, he clarified that a 50bps rate cut is "not something we're thinking about right now."

Market reactions were immediate. Fed funds futures are now pricing in over a 100% probability of a 25bps cut in September. More strikingly, the likelihood of three rate cuts by the end of this year has surged to over 75%, up from less than 60% a week ago. Dollar Steady Following FOMC, BoE Rate Decision Looms_1

Dollar Steady Following FOMC, BoE Rate Decision Looms_1

Technically, it appears that 55 D EMA is providing enough support for S&P 500 for now. Focus is back on 5585.34 resistance. Break there will argue that correction from 5669.67 has already completed at 5390.95. Larger up trend would then be ready to resume for new record highs.

Japan confirms JPY5.53T intervention, AUD/JPY slide persists

Japan confirmed its intervention in the currency market last month following Yen's drop to a 38-year low against Dollar. This intervention marked the turning point for Yen's massive month-long rally, which continues this week following BoJ's second interest rate hike this year. Governor Kazuo Ueda has indicated that further tightening remains a possibility.

The Japanese Ministry of Finance disclosed on Wednesday that authorities spent JPY 5.53T, or USD 36.8B, on market intervention between June 27 and July 29. This amount aligns with market expectations and underscores the significant effort to stabilize the yen.

The AUD/JPY pair has been one of the biggest losers, dropping more than 3% this week alone. Technically, the near-term outlook remains bearish as long as the 101.76 resistance holds, even if there is a rebound. The fall from 109.36 is viewed as a correction to the uptrend that started from the 2020 low of 59.85. A deeper decline is anticipated towards the 38.2% retracement level of 59.85 to 109.36 at 90.44. Strong support is likely at this level, considering its proximity to the 55-month EMA (currently at 90.83) and the psychological 90 level, which could provide a floor to the downside on the first attempt. Dollar Steady Following FOMC, BoE Rate Decision Looms_3

Dollar Steady Following FOMC, BoE Rate Decision Looms_3

Japan's PMI manufacturing finalized at 49.1 in Jul, back in contraction

Japan's PMI Manufacturing was finalized at 49.1 in July, down from June's 50.0, indicating that the sector is back in contraction streak since early 2023.

Usamah Bhatti of S&P Global Market Intelligence described the sector's performance as "downbeat" at the start of Q3. The decline was driven by a stronger reduction in new orders, leading to a renewed fall in production levels.

Inflationary pressures remained high, with input price inflation reaching a 15-month peak. Despite this, firms raised their selling prices more cautiously to stay competitive.

The near-term outlook appears "muted" due to the lack of new order inflows, allowing firms to clear outstanding business at the fastest rate since March. However, firms are optimistic that this period will pass within the coming year, expecting business expansion and new product launches to coincide with a broader economic recovery.

China's Caixin PMI manufacturing drops to 49.8, below expectations

China's Caixin PMI Manufacturing dropped from 51.8 to 49.8 in July, falling below the expected 51.6. S&P Global noted that output expanded at the slowest pace in nine months, average selling prices declined, and input cost inflation eased. However, business confidence showed improvement.

Wang Zhe, Senior Economist at Caixin Insight Group, commented, "Overall, the manufacturing sector largely stabilized in July. Supply expanded slightly, while domestic demand declined and external demand was steady. The reduction in business purchases was coupled with decreases in raw material stocks. The job market contraction was steady. Price levels faced pressure while market optimism improved slightly."

BoE faces uncertainty over first rate cut decision amid divided MPC

Today's focus is squarely on BoE's rate decision, with significant uncertainty surrounding whether the first rate cut will be initiated to kick-start the policy easing cycle.

Communications from various MPC members have shown no clear consensus. Known dove Swati Dhingra is expected to continue pushing for a rate reduction, urging BoE to stop squeezing living standards. Conversely, hawkish members like Catherine Mann are likely to guard against resurgence of inflation pressures, viewing the dip to 2% as "touch and go."

Chief Economist Huw Pill has stated that it's still an "open question" on whether rate cuts should start now. Adding to the uncertainty, Deputy Governor Clare Lombardelli, who is voting for the first time, remains a big unknown factor in today's decision.

Markets are currently pricing in around a 60% chance of a quarter-point cut today.

GBP/USD has been in steady but slow downward spiral since hitting 1.3043 in mid-July. For now, risk will stay on the downside as long as 1.2936 resistance holds. Sustained trading below 55 D EMA (now at 1.2783) as well as near term channel support (now at 1.2781) will argue that whole rally from 1.2298 might be over. Deeper fall would then be seen back to 1.2612 support. Nevertheless, break of 1.2936 will suggest that the pull back from 1.3043 has completed, and rise from 1.2998 is ready to resume. We'll know very soon.

Elsewhere

Eurozone PMI manufacturing final and unemployment rate, as well as UK PMI manufacturing final will be released in European session. later in the day, US ISM manufacturing is the main event while jobless claims will also be featured.

USD/CAD Daily Outlook

Intraday bias in USD/CAD remains neutral for the moment. Further rally is expected as long as 1.3796 support holds. Rise from 1.3176 should be resuming and next target is 61.8% projection of 1.3176 to 1.3845 from 1.3588 at 1.4025. On the downside, below 1.3796 minor support will delay the bullish case and bring deeper pullback first. Dollar Steady Following FOMC, BoE Rate Decision Looms_6

Dollar Steady Following FOMC, BoE Rate Decision Looms_6

In the bigger picture, price actions from 1.3976 (2022 high) are viewed as a corrective pattern, that might have completed at 1.3176 (2023 low) already. Firm break of 1.3976 will confirm resumption of whole up trend from 1.2005 (2021 low). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3176 at 1.4149. This will be the favored case as long as 1.3588 support holds, in case of pullback. Dollar Steady Following FOMC, BoE Rate Decision Looms_7

Dollar Steady Following FOMC, BoE Rate Decision Looms_7

Source: ActionForex

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Owen Li

Energy

Asia's crude oil imports dropped to the lowest in two years in July as demand remained weak in top importer China and eased in number two India.

A total of 24.88 million barrels per day (bpd) arrived in July in Asia, the world's biggest oil importing region, down 6.1% from the previous month and the lowest on a daily basis since July 2022, according to data compiled by LSEG Oil Research.

For the first seven months of the year, Asia's imports averaged 26.78 million bpd, down 340,000 bpd from the same period in 2023.

The ongoing weakness in Asia's oil imports undermines forecasts for robust growth for the region's oil demand from leading exporter group the Organization of Petroleum Exporting Countries (OPEC).

OPEC's July monthly oil market report stuck to the group's forecast the world oil demand will rise by 2.25 million bpd in 2024, lead by an increase of 760,000 bpd in China, and supported by a gain of 230,000 bpd in India and a further 350,000 bpd for the rest of Asia.

The International Energy Agency (IEA) has diverged from OPEC's view in its recent analysis, forecasting on July 11 that global oil demand growth will by 970,000 bpd.

But contained within the IEA forecast is the expectation that China will account for about 40% of the global increase in crude demand, which is about 388,000 bpd.

While imports are only one component of demand growth, the others being domestic production and potential inventory draws, it's fair to say that China's imports are tracking nowhere near the IEA's forecast, and are an ocean away from OPEC's.

If LSEG's estimate of China's imports of 10.53 million bpd for July is confirmed in official trade data expected next week, it would mean arrivals of around 10.98 million bpd for the first seven months of the year.

This is down 240,000 bpd, or about 2.1%, from the customs data of imports of 11.22 million bpd for the first seven months of 2023.

Far from growing, China's demand for imported crude is slipping, meaning a dramatic turnaround will be needed for the remaining five months of the year to get anywhere close to even the modest forecast for demand growth from the IEA.

The question is whether such a turnaround is likely, or if the sluggish economic story for China is locked in for the rest of the year.

Growth Hopes

It's possible economic growth will pick up over the remainder of 2024, especially if the early signs that Beijing is getting more serious about stimulus actually translate into increased activity.

But even if policies to encourage consumers to swap old for new appliances and vehicles are enacted, it doesn't necessarily mean a boost to fuel consumption, especially since it's likely that a high percentage of any new vehicle sales will be electric.

What's more hopeful for China's oil demand is LSEG's expectation that the world's biggest crude importer is once again building stockpiles.

An additional 60 million barrels is believed to have been approved for the Strategic Petroleum Reserve (SPR) and LSEG reports that inflows to storage sites have already been assessed and the amount is expected to land between July and the end of the first quarter of 2025.

There is a possible caveat to China's SPR purchases, namely that they are also likely dependent on the crude price remaining at what the Chinese assess as a reasonable level.

Outside of China, there is little reason to be optimistic about a pick up in Asia's demand for crude, with India's imports slipping to 4.54 million bpd in July from 4.76 million bpd in June and 5.14 million bpd in May.

A seasonal easing of imports is likely as India's monsoon season approaches, but they should recover after the wet season given solid economic growth in the South Asian nation amid an infrastructure boom.

Elsewhere in Asia, demand for crude is being capped by lacklustre economic growth and weak margins for refiners - who have been battling relatively high crude oil prices, especially from Middle East suppliers such as Saudi Arabia - but limp product prices given soft demand across the region.

Source:

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FED

Remarks of Officials

After the Fed's July interest rate decision, Powell held a press conference with the following main points:

The Fed will maintain the restrictive stance of monetary policy and is attentive to risks to both sides of our dual mandate. The economy has made considerable progress toward both goals over the past two years.

Recent indicators suggest that economic activity has continued to expand at a solid pace. GDP growth moderated to 2.1 percent in the first half of the year. Private domestic final purchases, or PDFP, grew at a 2.6 percent pace over that same period last year. Growth of consumer spending has slowed from last year's robust pace but remains solid. Improving supply conditions have supported resilient demand and the strong performance of the U.S. economy over the past year.

In the labor market, supply and demand conditions have come into better balance. Strong job creation over the past couple of years has been accompanied by an increase in the supply of workers, reflecting increases in participation among individuals aged 25 to 54 years and a strong pace of immigration. The unemployment rate has moved up but remains low at 4.1 percent. Nominal wage growth has eased over the past year. Overall, a broad set of indicators suggests that conditions in the labor market have returned to about where they stood on the eve of the pandemic—strong but not overheated.

In the past two years, inflation has eased substantially from a peak of 7 percent to 2.5 percent, but slightly higher than the 2 percent target. Data suggests that inflation falls more, and longer-term inflation expectations appear to remain well anchored, but the upside risk is weakened. Reducing policy restraint too soon or too much could result in a reversal of the progress we have seen on inflation. At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment.

There is an in-depth discussion on rate cuts at this meeting and it is getting closer to the point where rates can be cut. However, it has not yet reached that point and more data is needed to further boost confidence. If inflation falls as expected and the labor market unexpectedly weakens, rates could be cut as early as the next meeting in September.