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Greenback recovering after positive Q2 GDP – all eyes on FOMC

Albert Edwards
by Albert Edwards on July 29, 2019


USD stronger after better than expected growth data did not change the Federal Reserve’s stance to lower interest rates for the first time in a decade. GDP for Q2 was 2.1% gain (versus 1.8% expected and previously 3.1% growth in Q1). Durable goods in June also expanded by 2% (versus 0.7% expected) and the dollar index reached its highest level since May. White House advisor Larry Kudlow ruled out intervention in currency markets to counter other nations from weakening their own currencies to help exporters. Markets will focus on the FOMC this week Wednesday as policymakers are expected to cut interest rates by 25 bps (from 2.5% to 2.25%). Unemployment Rate for July also available Friday.

Canadian dollar highlights:
CAD under pressure as markets are considering if the Bank of Canada will follow the Federal Reserve and also lower interest rates (after recent economic data disappointed). Oil prices remain stable and also provided some support for CAD (while tensions continue to escalate in the Middle East). Meanwhile, average weekly earnings increased 3.4% yearly (highest since February). Markets will focus on the Producer Prices report for June and GDP for May available Wednesday.

Euro highlights:
EUR stable after the central bank failed to cut interest rates (as expected). President Mario Draghi provided some optimism about his outlook on the economy. Draghi also dismissed any fears of a recession and suggested more government action is needed to prevent a potential downturn. The European Central Bank said rates would stay “at their present or lower levels” and opened the possibility for more quantitative easing in September. Germany’s manufacturing sector has also been suffering and may affect the Eurozone. The forecast of more monetary easing will keep EUR under pressure. Markets will focus on Wednesday’s Inflation Rate for July and Unemployment Rate for June.

British pound highlights:
GBP remains under pressure as the current Brexit withdrawal agreement will not pass parliament approval and European Commission President Jean-Claude Juncker said it won’t be renegotiated. Juncker told new Prime Minister Boris Johnsnon the existing deal is “the best and only agreement possible”; meanwhile, Johnson insists the current arrangements regarding the Irish border are not good enough and must be abolished. Johnson has also threatened to walk out on the deal and leave the European Union on October 31. A no-deal Brexit would be chaotic and expensive for both Europe and the United Kingdom. Bank of England Interest Rate Decision available Thursday.