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Greenback stable – all eyes on ECB monetary policy

Albert Edwards
by Albert Edwards on July 25, 2019


U.S. dollar highlights:

USD gaining momentum ahead of the next Fed policy meeting on July 30-31. Markets continue scaling back expectations of a 50 bps rate cut next week, and this has provided some USD recovery. Crude oil stocks decreased more than expected last week to -10.835 million barrels per day (following a drop of 3.116 million barrels per day the previous week). This represents the sixth straight week of decline for crude oil inventories, causing higher prices and weighing on USD. New Home Sales for June was 0.646 million/7% increase (compared to expected 0.66 million/6%). The International Monetary Fund cut global growth forecast due to trade tensions. Meanwhile, China approved U.S. soybean purchases as a good will gesture. The world’s two largest economies continue trade negotiations next week in China (the first since May) and markets will be monitoring closely for any progress. Treasury Secretary Mnuchin said meetings will continue in Washington following the trip to Beijing.

Canadian dollar highlights:

CAD support due to higher oil prices with escalating geopolitical tensions in the Middle East. In addition, U.S. crude stocks dropped more than expected last week (creating more demand). The focus for CAD remains the Bank of Canada’s monetary policy stance and markets are considering if a rate cut is next (due to recent disappointing economic data).

Euro highlights:

EUR weakness continues after the Eurozone Purchase Managers Index disappointed at 46.4 (from 47.6 in June); German output slowed to 43.1 and France dropped to 50.0 (both lower than expected). Meanwhile, the Manufacturing Index fell to 46.4 (confirming a recession). The 50-point threshold determines expansion from contraction. Markets are focused on the European Central Bank’s interest rate decision and press conference with a rate cut already factored in. Slowing global growth has been affecting EUR all year, so further accommodative measures are needed to improve the economy (such as quantitative easing). A rate cut was originally forecasted for September; however, the central bank may act sooner.

British pound highlights:

GBP weaker after Boris Johnson takes over as the new British Prime Minister (and Conservative Party leader). The European Union cautiously welcomed Johnson and said there will be no renegotiation of the Withdrawal Agreement. John has less than 100 days to deliver Brexit (deal or no deal).