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Greenback Stable After Hawkish Fed – All Eyes On CAD Retail Sales

Currency-Market-Update-Friday-3
Albert Edwards
by Albert Edwards on September 20, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD was stronger after the Federal Reserve lowered interest rates by 25 bps on Wednesday (as expected) and indicated no further moves this year. There was division among the Federal Open Market Committee regarding the decision as some members wanted a 50bps cut and others suggested no cut at all. Chairman Powell said the Fed would only cut rates again if circumstances required. USD sellers took advantage of the greenback rising because we have been stuck in a tight range the past week. USD buyers were disappointed with the hawkish cut and were looking for signals of this as part of a cycle with more cuts in the future; however, markets already priced in this week’s rate cut. Since the 2019 dot-plot indicated more easing is necessary, markets are also pricing in one more cut by the end of 2019. Meanwhile, initial jobless claims for last week was 208K (previously revised to 206K and lower than expected 209K).

Canadian Dollar Highlights:

CAD lower after the Fed confirmed no more rate cuts expected this year. CAD remains under pressure as the Bank of Canada remains neutral and no rate cuts expected (compared to the European Central Bank and Bank of England). Home prices increased for the fourth consecutive month in August (0.4% monthly and 0.6% yearly) as the housing market recovered faster than expected (due to lower mortgage rates). Oil prices stabilized as Saudi Arabia said supply was restored after last week’s drone attack. Markets will focus on the Retail Sales for August for CAD direction today (expecting 0.4% month over month and 2.1% increase yearly).

Euro Highlights:

EUR stable, but still vulnerable after last week’s central bank policy meeting. Meanwhile, Eurozone’s July account balance increased to €20.55 billion. Inflation was stable in August and the lowest level in three years at 1% yearly and 0.1% increase monthly. The European Union warned Britain that a no-deal Brexit is inevitable if they do not resolve the Irish border issue by the October 31 deadline.

British Pound Highlights:

GBP soft after the Bank of England noted that slow inflation, no-deal Brexit risks and concerns of a global slowdown are affecting the economy. The Supreme Court will decide over the legality of Prime Minister Boris Johnson’s suspension of Parliament and could rule that parliament reopen. The future of Brexit now depends on whether parliament will have more time to limit Johnson’s power. Meanwhile, the central bank left interest rates unchanged at 0.75% (as expected) and revised its Q3 GDP forecast lower (from 0.3% quarterly to 0.2%). The global growth outlook has weakened due to the trade war. The central bank also hinted that a rate cut is possible if there is a no-deal Brexit (or lengthy extension). Retail Sales for August dropped 0.2% monthly and increased 2.7% year over year.

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