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BCB Set To Initiate Easing Cycle, Damp Sentiment Following US Downgrade

LATAM
  • Brazil’s central bank is expected to initiate the easing cycle at the August meeting. Analysts remain divided between a 25-50bp cut, with the surveyed median forecast leaning towards a 25bp reduction, bringing the Selic rate to 13.50%. A much quieter session for data on Wednesday in Latin America with July vehicle sales figures for both Mexico and Brazil are expected.
  • US: The US was stripped of its top-tier sovereign credit grade by Fitch Ratings, which criticized the country’s ballooning fiscal deficits and an “erosion of governance” that’s led to repeated debt limit clashes over the past two decades. The credit grader cut the US one level from AAA to AA+, echoing a move made more than a decade ago by S&P Global Ratings. (BBG)
    • Biden administration officials shared their disagreement with Fitch ahead of an announcement on Tuesday, officials tell reporters. An official says they expect no impact on borrowing costs and would be surprised if they saw a market reaction to this.
  • Despite the USD index trading close to unchanged, high beta currencies - namely the AUD and NZD - are the weakest performers so far in G10, helping prompt AUD/USD to print a new multi-month low of 0.6566. Focus ahead turns to the ADP employment change release.
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