U.S. dollar highlights:
USD stable as trade talks with China will continue today in Beijing. The market tone is risk-off as Brexit risks increase and Unemployment Rate for July available Friday. The Federal Reserve is expected to cut interest rates on Wednesday by 25bps. Markets originally forecasted a 50bps rate cut, however, recent economic data indicated stronger than expected growth in Q2. Another 25bps rate cut is forecasted for September. Chairman Jerome Powell stated a rate cut is needed to improve economic expansion and the main risks will come from general global growth, trade and business. President Trump also said last week that it was “a beautiful thing” to have a strong USD.
Canadian dollar highlights:
CAD support mainly due to higher crude oil prices while tensions continue to escalate in the Middle East. Markets are focused on Wednesday’s GDP report for May (0.2% growth expected) and Producer Prices for June (expecting 0.2% gain monthly). A strong labour market, increased wages and inflation on target is keeping the Bank of Canada on hold regarding monetary policy.
EUR weaker and defensive as markets expect the European Central Bank to follow the Federal Reserve with a rate cut (in September). Due to the current interest rate already low, the central bank may need to introduce quantitative easing and a tiered deposit rate system. The main monetary policy tool is currently forward guidance. President Draghi’s replacement Lagarde will reinforce the current plans will continue. In addition, the impact of Brexit continues to affect EUR as the risk of a no-deal will weaken the economy.
British pound highlights:
GBP lower due to increased concerns that new Prime Minister Boris Johnson will accept a no-deal Brexit. The government insists that the Irish backstop be removed to avoid a no-deal departure, however, the European Union will not renegotiate. Johnson may provoke a general election to delay the departure date of October 31 and try to win a bigger majority. The Bank of England is expeced to hold interest rates at 0.75% on Thursday.