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Greenback soft focus on Fed & rate cuts

Albert Edwards
by Albert Edwards on July 16, 2019


USD remains weak due to the dovish commentary from Federal Reserve Chairman Jerome Powell last week. Powell indicated that interest rates cuts are necessary to increase inflation and the current economic expansion can continue. In addition, other policymakers noted concerns about the downside risks to the economy. Markets have already priced in a rate cut for later this month and possibly another cut in September. President Trump continued criticizing the Fed over the weekend and implied the central bank’s “antiquated policy” was a brake on growth. Trump is also considering replacing Commerce secretary Wilbur Ross following the census setback. Chinese Industrial Production, Retail Sales and Fixed Asset Investment was stronger than expected in June; however, GDP growth slowed to 6.2% yearly (from 6.4%) due to the ongoing trade war. Retail Sales for June expecting 0.4% month over month and 3% year over year today. Markets will focus on the Industrial output data today and the Philly Fed Survey available Thursday.

Canadian dollar highlights:

CAD support currently due to higher oil prices and the Bank of Canada holding interest rates. Relations between China and Canada continue to deteriorate after another Canadian citizen was detained by Chinese police. China is retaliating after Canada’s detainment of Huawei Technology CFO earlier this year. New Motor Vehicle Sales for May was 207K (lower than expected 220K and previously 185K in April). Markets will focus on the CPI report for June tomorrow and Retails Sales for May available Friday.

Euro highlights:

EUR currently stable as the European Central Bank waits for the Federal Reserve to cut interest rates. Christine Legarde will replace President Mario Draghi in November and will continue the central bank’s policies regarding monetary policy and quantitative easing. Economic data in the Eurozone has been disappointing recently and further measures are expected to boost the economy. A rate cut is also expected, and this is keeping EUR defensive. Markets will focus on the inflation Rate for June available tomorrow.

British pound highlights:

GBP weaker after U.K. banks noted that Brexit uncertainty is affecting business investment. Also, some Tory parliament members are prepared to revolt against a move by Boris Johnson to make changes to the Withdrawal Agreement. The Conservative Party will announce the winner of the leadership race next week and Johnson is expected to win. Fears of a no-deal Brexit have increased with Johnson as the next Prime Minister and GBP will continue weaker. Markets will focus on the Unemployment Rate for May today and Inflation Rate for June tomorrow.