Treasuries Advance as Traders Mull Size of Fed Cut – Europe Market Wrap

After a mixed bag of US data this week left investors unsure about the extent of an anticipated rate drop from the Federal Reserve next week, Treasuries rose and the dollar declined.

For a third day, the dollar declined by 0.2% and the policy-sensitive two-year Treasury rate fell by five basis points. Following a run that saw the S&P 500 rise by 3.5% and the Nasdaq 100 rise by more than 5% this week, US futures indicated modest gains.

Regarding the extent of the Fed’s expected shift to policy easing beginning at the meeting next week, investors are still split. The discussion has persisted since data released on Thursday revealed that the US producer price index increased little in August following a downward revision to the prior month’s figures. Meanwhile, worries about a contracting labour market were rekindled by an increase in applications for unemployment benefits.

In contrast to 31 basis points on Thursday and 26 basis points on Wednesday, traders are currently placing bets for 33 basis points of Fed rate decreases on September 18.

The more closely studied consumer price index indicated that underlying inflation rose in August, and this was followed by Thursday’s wholesale inflation statistics. Nonetheless, decision-makers have made it apparent that softening in the labour market is a top priority right now.