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Greenback defensive on dovish Fed and geopolitical risks

Albert Edwards
by Albert Edwards on September 10, 2019


U.S. dollar highlights:

USD reached a five-week low after last week’s disappointing jobs data. Weaker employment growth overshadowed strong wage growth last month. Federal Reserve Chairman Powell was dovish and said they will “act as appropriate” to put further pressure on USD. Consumer spending also remains strong but the trade war continues to create fears of a global slowdown. Negotiations with China will begin again next month and President Trump will be under pressure to make concessions before the upcoming elections. Markets are still pricing in another rate cut this year while the economy is showing signs a recession. Meanwhile, China plans to add more stimulus to boost their economy. Both of the world’s largest economies have suffered from the ongoing dispute. Producer Prices for August expecting 0% monthly and 1.7% increase yearly tomorrow.

Canadian dollar highlights:

CAD strength continues mainly due to higher crude oil prices. Easing trade tensions will increase demand and commodity prices. Support was also from last week’s employment data confirming 81K jobs were added in August. Wage growth also lowered last month, but still strong. Positive economic data has decreased the likelihood of any easing from the central bank. Markets are expecting the Bank of Canada to be hawkish and hold interest rates for the rest of year. Housing starts for August expecting 222K and July Building permits expecting to drop by 3.7% monthly today.

Euro highlights:

EUR defensive and vulnerable as the European Central Bank meets later this week. New stimulus is expected to boost the economy and inflation while investor morale is improving. Markets are also expecting the central bank to follow the Fed and cut rates, paying close attention to the amount and length of cycle. If the Eurozone’s largest economy (Germany) is slowing and facing a recession, then the remaining countries are also under pressure. Wage growth for Q2 available Friday (previously 2.5% yearly increase in Q1, the strongest in almost 10 years).

British pound highlights:

GBP improved to a one-month high after the economy unexpectedly grew in July. This helped reduce fears of a recession as political tensions escalate over Brexit. Prime Minister Johnson has suspended parliament until October 14 as the Brexit delay bill is approved. A snap election is also Johnson’s strategy and concerns whether parliament will approve this vote will limit GBP strength. July GDP improved 0.3% (versus 0.1% expected) and all eyes on the jobs data for July available today.


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