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Greenback defensive after Powell’s speech ahead of CPI

Albert Edwards
by Albert Edwards on July 12, 2019


USD weaker after the second day of testimony to the Senate Banking Committee from Fed Chairman Powell. The Federal Reserve is expected to cut interest rates at the end of this month (50 bps) and markets are prepared for another potential cut in September, causing USD weakness. Powell’s comments were considered dovish with the Fed prepared to act to ensure that economic expansion is sustained. President Trump has demanded for lower rates and Powell said he will not leave until his 4- year term is complete. Consumer Prices for June was 1.6% year over year (as expected) and Core Inflation was 2.1% (versus 2.0% estimate). This is the 16th consecutive month of Core CPI at or above the 2% target by the Federal Reserve. Initial Jobless claims for last week was 209K (lower than expected 223K and previously revised to 222K). Producer Prices for June expecting 0.1% monthly and 1.6% yearly today.

Canadian dollar highlights:

CAD strength continues after the Bank of Canada kept interest rates on hold at 1.75% and refrained from hinting at the next policy move. The central bank also made it clear there is no intention to match interest rate cuts from the Fed and highlighted the risks trade wars posed to the global economy. Due to an economic slowdown, interest rates have been on hold since last October. New Housing Price index for May was -0.1% monthly (versus 0.2% expected).

Euro highlights:

EUR defensive after the latest central bank meeting minutes revealed more willingness to cut interest rates and resume the bond buying program. The governing council also agreed to prepare for policy easing. French and German Consumer Prices were left unchanged at 1.2% and 1.6% yearly. Although Germany accelerated in June, this was still below the central bank’s target of 2.0% year over year. President Draghi has maintained a dovish stance, and this has affected EUR lower.

British pound highlights:

GBP stable as markets monitor Brexit developments. A weakening economy and fears of a no-deal Brexit keeping GBP lower. In addition, Bank of England Governor Mark Carney signaled a possible interest rate cut and warned that the U.K. risks economic disruption from a no-deal Brexit. The central bank’s Financial Stability Report showed the financial system was ready for Brexit, but other parts of the economy need to improve to prepare for exiting the European Union.