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Greenback stable ahead of European Central Bank policy meeting

Albert Edwards
by Albert Edwards on July 23, 2019


USD stable after reduced expectations of heavy monetary policy by the Federal Reserve. New York Fed President John Williams clarified his statement last week that he did not intend to suggest the FOMC would make a large rate cut at the next meeting later this month. Meanwhile, Boston Fed President Eric Rosengren said he does not see a rate cut as necessary as the economy “is quite strong” and not yet showing signs that more accommodation is needed. However, markets are still expecting a 25bps rate cut next week. The United Kingdom is also involved after Iran seized a British oil tanker in the Strait of Hormuz. In addition, China is ready to import more U.S. agricultural products, which helps the trade deal prospects. Existing Home Sales for June expecting 5.34 million/2.5% today.

Canadian dollar highlights:

CAD still under pressure after last week’s Retail Sales were lower than expected. After increased political tensions in the Middle East, oil prices will determine CAD direction this week. Wholesale Sales for May decreased 1.8% monthly (lower than expected 0.4% increase and previously 1.7% in April). Markets will also focus on the GDP date for May available next Wednesday.

Euro highlights:

EUR will be defensive this week as markets focus on the Interest Rate decision and central bank press conference (available Thursday). Policy makers are expected to be dovish (and follow the Fed) and cut interest rates (in September). Services PMI expecting 53.6 reading and Manufacturing PMI expecting 47.6 reading tomorrow will also be important as the Eurozone continues to experience a slowdown (due to Brexit uncertainty).

British pound highlights:

GBP continues to fall after U.K. Foreign Office Minister Alan Duncan resigned and some Tory members may also resign ahead of the leadership contest today. In addition, The National Institute of Economic and Social Research said there is a 25% chance the U.K. is already experiencing a recession; meanwhile, there is a possibility of a severe economic downturn in the event of a no-deal Brexit. The economy will only grow 1% this year (and in 2020), even with a smooth departure from the European Union on October 31. GBP will remain defensive with leading candidate Boris Johnson as the next Prime Minister.