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Greenback rebounds but all signs point toward a lower USD

Albert Edwards
by Albert Edwards on July 24, 2019


USD higher after the White House and Congress reached a 2-year debt ceiling deal. The risk of another government shutdown was averted and helped support USD. During the past 2 weeks, USD was defensive due to dovish Fed expectations; however, USD is recovering this week. President Trump is still pressuring the Federal Reserve for immediate rate cuts, but markets are scaling back expectations of a 50bps rate cut next week. The July Philly Fed non-manufacturing index increased to 21.4 (from 8.2 readying previously in June); however, the Richmond Fed Manufacturing Index was -12 reading. Meanwhile, Existing Home Sales for June dropped 1.7% to 5.27 Million (previously revised to 5.36 million/2.9% in May). New Home Sales for June expecting 0.66 million/6% gain today.

Canadian dollar highlights:

CAD defensive after the International Energy Agency vowed to keep global oil markets adequately supplied, causing lower demand. CAD strength the past two weeks has been mainly due to the Bank of Canada’s patient stance (no interest rate cut) and higher crude oil prices. However, Wholesale sales dropped the most since March 2016 in May and Retails Sales also declined so the central bank may need additional stimulus to boost the economy. Markets are also focused on next week’s GDP data for May.

Euro highlights:

EUR under pressure as market are expecting the European central bank to announce new accommodative measures tomorrow (including a rate cut and renewing quantitative easing). The central bank may also wait until September with lower interest rates. Meanwhile, Consumer Confidence for July was -6.6 (previously -7.2 in April) as Brexit uncertainty continues. Manufacturing and Services Index reports for July available today.

British pound highlights:

GBP lower after Boris Johnson won the Conservative leadership race and will replace Theresa May as the next U.K. Prime Minister. Concerns of a no-deal Brexit increased since Johnson said Britain will leave the European Union “do or die” on October 31. Johnson will take office today and select a new team of ministers; however, an early general election has been ruled out. Finance Minister Philip Hammond has already resigned (due to his different stance regarding Brexit). Johnson also has to deal with Iran after a British tanker was seized last week Friday.