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Greenback lower after Fed confirms rate cut

Currency-Market-Update-Thursday-2
Albert Edwards
by Albert Edwards on July 11, 2019

CURRENCY MARKET UPDATE

USD weaker after Federal Reserve Chairman Jerome Powell indicated that policymakers consider that uncertainties since the June FOMC meeting continued to dim the outlook and they are ready to act to sustain growth. The Fed is concerned about weak inflation continuing and are still confident about economic growth. Powel also opened the door to future rates cuts and markets have already priced in for July and September. Trade uncertainties remain a concern as the Fed is unconvinced about the trade truce between Trump and Xi; weak labour market and recent rise in wages is insufficient to push inflation higher; investment is slowing and may continue. Inflation Rate for June expecting 1.8% yearly today and Core expecting 2% (same as previous month and as expected).

Canadian dollar highlights:

CAD defensive after the Bank of Canada kept interest rates on hold at 1.75% (as expected). The degree of monetary policy is appropriate, and they will continue to monitor developments in the energy sector and the impact of trade conflicts. Global trade tensions affecting the economy’s path back to full capacity and the central bank will remain on hold indefinitely. Markets are not expecting Governor Poloz to follow the Federal Reserve with rate cuts over the next year. The central bank also revised growth projections for Q2 to an annualized 2.3% and growth may decelerate in Q3 while 2019 growth will remain at 1.3% (from 1.2% expected in April). New Chinese trade restrictions on Canadian agricultural goods also affecting global growth. The economy will grow 1.9% in 2020 (less than initial 2.1% forecast).

Euro highlights:

EUR stable after German bund yields increased to their highest level in three weeks. The European Commission lowered its economic forecast in 2020 (due to U.S. trade policy). The central bank now is under pressure to cut interest rates and follow the Federal Reserve. French and Italian Industrial Production increased 2.1% and 0.9% monthly. Manufacturing output in France advanced (compared to other countries in the Eurozone).

British pound highlights:

GBP stable after U.K. GDP grew 0.3% in May (higher than expected 0.1% advance). Car production rebounded after Brexit related shutdowns. Industrial production and manufacturing also improved in May after a soft April. Increased fears of a no-deal Brexit under a new Prime Minister and weak economic data may cause the Bank of England to also cut interest rates. Parliament members are also considering taking court action to prevent a no-deal Brexit.

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