U.S. dollar highlights:
USD stable as President Trump maintained pressure on the Federal Reserve for additional stimulus. Although the economy is “very strong”, Trump said the Fed should cut interest rates by 100bps quickly and resume Quantitative Easing. In contrast, Boston Fed President Eric Rosengren said there is no need to cut rates. Markets are still expecting a 25bps rate cut in September; meanwhile, increased pressure on the Fed may cause a change in their stance. If Fed Chairman Powell remains dovish, yields and USD will drop; however, if Powell is hawkish USD (and safe-haven currencies) will strengthen. Comments from China regarding Trump’s decision to delay the ban on Huawei caused risk-off and USD higher. Markets will focus on today’s FOMC meeting minutes and Powell’s speech on Friday to determine if the Fed intends to cut rates in September (as a result of trade wars and recession fears) or maintain its patient approach.
Canadian dollar highlights:
CAD weaker after China indicated they were not satisfied with the U.S. action to delay the ban on Huawei. Higher crude oil prices could not support CAD in an environment of risk-off as markets prefer safe-haven currencies. Crude oil Inventories in the U.S. fell by 2.1 million barrels the previous week (ninth consecutive weekly decline). Meanwhile, Manufacturing Sales for June dropped 1.2% monthly (versus -1.8% expected). Markets will focus on the Consumer Prices report for July (expecting 2% year over year and Core).
EUR under pressure after Italian Prime Minister Giuseppe Conte resigned. Italy’s League party also decided to withdraw the no-confidence motion against Conte. Deputy Prime Minister Matteo Salvini said the €50 billion budget is necessary in 2020, after breaking the coalition government and called for an election. Continued political turmoil in Italy and fears of a recession in Germany keeping EUR defensive and lower. Chancellor Angela Merkel and German Finance Minister Olaf Scholz are working on a plan to manage the potential crisis.
British pound highlights:
GBP defensive after Prime Minister Boris Johnson’s letter requesting for a Brexit renegotiation received a cautious response. Irish Prime Minister Leo Varadkar reiterated with prime Minister Johnson that the European Union needs to be more flexible. Johnson is fighting for Brexit and accused the European Union of intransigence (which has also been supported by Tory Chairman James Cleverly). Meanwhile. Opposition leader Jeremy Corbyn requested for parliament members opposing a hard Brexit to unite and insisted he should replace Johnson.