U.S. dollar highlights:
USD stronger after delaying sanctions on Huawei Technology Co. and markets interpreted this as a sign of progress in the trade war with China. One week after President Trump delayed new 10% tariffs on some Chinese consumer goods until December 15, the U.S. will extend exemptions for Huawei customers for another 90 days. The latest Federal Reserve meeting minutes are available tomorrow and Chairman Powell will speak on Friday at the annual Jackson Hole symposium on the challenges for monetary policy. Markets are expecting another rate cut by 25bps in September. Meanwhile, President Trump is calling for the Federal Reserve to cut interest rates by at least 1% “over a fairly short period of time”. Trump feels this would make the economy even better and would “greatly and quickly” enhance the global economy. Powell was chosen by Trump for the top Fed position, however, Trump said he now lacks “vision”.
Canadian dollar highlights:
CAD defensive after positive trade developments between the world’s two biggest economies. Oil prices increased after the U.S. delayed sanctions and a drone strike on a Saudi oilfield will affect supply. Tensions in the Middle East will continue to affect oil prices and CAD strength. Manufacturing Sales for June available today, CPI tomorrow, Wholesale Trade on Thursday and Retail Sales on Friday. The risk is the retail sales data will be soft and expectations are increasing that the Bank of Canada may follow The Fed cutting rates.
EUR weaker after Eurozone Consumer Prices for June disappointed at -0.5% monthly and inflation reduced to 1.0% (from 1.3% yearly). Meanwhile, Core prices only increased 0.9% (as expected). Weak inflation is putting more pressure on the European Central bank to add more stimulus in September and markets have already priced in a rate cut. In addition, Germany is considering a new stimulus plan (and taking on new debt) to prepare for a possible recession.
British pound highlights:
GBP remains vulnerable after the European Commission said a no-deal Brexit is not preferred, but they are prepared for all eventualities. House prices fell 1.0% in August and the economy is preparing for a no-deal Brexit. GBP also under pressure as opposition parties continue to try and overcome Prime Minister Johnson’s no-deal threat with the risk of a no-confidence vote in the new government and an election in the fall.