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Greenback stable amid risk aversion – all eyes on Fed Chair Powell

Currency-Market-Update-Friday-2
Albert Edwards
by Albert Edwards on August 23, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD recovered after the latest Federal Open Market Committee meeting minutes were dovish and sent stocks lower. Markets are now focused on Fed Chairman Jerome Powell’s speech on monetary policy at Jackson Hole today. Powell’s comments will be examined carefully for any insight over the central bank’s outlook and will determine the direction of USD. A rate cut for next month is already priced in; however, another 2 rate cuts are possible for 2020 (to total 1% cut overall). The July rate cut may have been the beginning of a cycle and Powell will clarify if more easing remains or if it was the start of more relaxation policy (which President Trump wants). Meanwhile, initial jobless claims for last week was 209K (lower than expected 216K and previously revised to 221K). In addition, China said the impact from the U.S. tariffs are overall manageable.

Canadian dollar highlights:

CAD firm after the Energy Information Administration reported a larger than expected drawdown of U.S. inventories and global demand growth concerns are increasing. Wholesale Trade sales for June increased 0.6% (versus -0.2% expected). Markets will focus on the June retail sales available today (expecting 3.5% increase year over year). Central Bank policy, oil prices and trade war developments will determine CAD direction.

Euro highlights:

EUR dropped to nearly the lowest level in the past year as central bank easing expectations and Italian politics causing risk aversion. The European Central bank is expected to announce new monetary stimulus during the September meeting (including cutting interest rates, re-starting the Quantitative Easing program and a tiered deposit rate system). Meanwhile, the Eurozone Manufacturing Index for August was still below the 50.00 benchmark (47.0 versus 46.2 expected). Germany’s reading disappointed at 43.6 and this added to concerns about a recession.

British pound highlights:

GBP stronger after positive Brexit news boosted the pound to a 3-week high. German Chancellor Angela Merkel said that a solution to the Irish backstop could be finalized within 30 days. Germany also insisted that if the U.K. wants to avoid the Backstop, they must present some alternatives. Prime Minister Boris Johnson also met with France President Emmanuel Macron (who insisted on no changes to the Withdrawal Agreement and wants to protect the stability in Ireland). Markets are still concerned about a no-deal Brexit with Johnson in charge.

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