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Greenback mixed after strong CPI and oil

Albert Edwards
by Albert Edwards on August 14, 2019


U.S. dollar highlights:

USD gained strength after July Consumer Prices increased 1.8% yearly (versus 1.7% expected); meanwhile, Core Inflation increased to 2.2% year over year (the highest since January and previously 2.1%). This unexpected increase will cause the Federal Reserve to consider if lowering interest rates further is warranted. Employment and consumer spending are solid following last month’s 25bps rate cut; however, markets are anticipating another cut in September (due to increased trade tensions). USD retreated after Trade Representatives said they will delay additional 10% tariffs on a list of Chinese imports (including laptops and monitors) until December 15. The next round of trade talks will be in September in Washington. China reported progress towards a potential trade deal after Treasury Secretary Steven Mnuchin spoke with China’s Vice Premier Liu.

Canadian dollar highlight:

CAD stable after crude oil prices reached over $57.00 per barrel (due to U.S.-China trade tensions easing). After a steady decline in July, oil prices are rebounding ahead of the U.S. crude stock inventory report today. Risk aversion continues to dominate as markets are concerned about the situation in Hong Kong.

Euro highlights:

EUR defensive after the U.S. said some tariffs would be delayed until December 15. Trade tensions, protests in Hong Kong and U.S.-Iran tensions are keeping EUR lower; meanwhile, German 10-year and three-year yields fell below zero to add more pressure. The European Central Bank is currently running a negative interest rate, and this will continue to 2020. EUR will strengthen again during risk-off or a Brexit deal finalized by October 31.

British pound highlights:

GBP stable after Commons Speaker John Bercow said he would refuse to let Prime Minister Johnson take Britain out of the European Union by suspending parliament. Bercow also said that parliament members can stop Britain leaving without a deal by October 31. This news helped markets reduce the chance for a no-deal Brexit; however, political uncertainty will continue to affect GBP. Meanwhile, Unemployment Rate for July was 3.9% (higher than expected 3.8%) and the number of employed people increased by 115K (higher than expected 65K).