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Greenback softer as risk appetite returns

Currency-Market-Update-Friday-3
Albert Edwards
by Albert Edwards on August 09, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD lower after President Trump accused the Federal Reserve of holding back the economy from winning the trade war with China. Trump blamed the Fed for not initiating interest rates cuts “bigger and faster” and they are too proud to admit their mistake of acting too fast and tightening too much. Another rate cut in September is possible (currently 40% probability), followed by two more cuts in 2020. The chances of a recession in the next year increased to 35% (from 31% previously). Markets were affected negatively after China depreciated the CNY against USD and Trump feels their trade policies are unfair (including stealing technology). Tensions between Trump, China and now the central bank will keep USD defensive. Meanwhile, Initial Jobless Claims for last week was 209K (previously revised to 217K and lower than expected 215K). Producer Prices for July expecting 0.2% monthly and 1.7% yearly today.

Canadian dollar highlights:

CAD support due to oil prices rebounding higher after Saudi Arabia contacted other producers to prevent prices dropping further. However, escalated trade tensions will affect global oil demand growth. New Housing Price Index for June was -0.1% (versus 0.0% expected). All eyes on the Unemployment Rate for July, Housing Starts, Building Permits and average hourly wages available today.

EUR highlights:

EUR stable after the European Central Bank stated prolonged uncertainty is dampening the growth outlook. The Eurozone manufacturing sector is affected the most and the central bank may follow the Fed and cut rates in 2020. Italy’s Interior Minister Matteo Salvini considered breaking up the coalition government with the 5-Star Movement after disagreeing about the budget. Political tensions will continue dropping the EUR.

British pound highlights:

GBP reached a 31-month low as markets are concerned about the October 31 Brexit deadline. The U.S. Secretary of State Mike Pompeo said they will be ready to sign a post-Brexit trade deal with the United Kingdom. New Car Sales for July dropped 4.1% yearly, while the House Price Index increased 4.1% year over year. Markets will focus on the GDP Growth Rate for Q2, Manufacturing and Industrial Production for June available today.

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