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Greenback stronger as Fed rate cut expectations ease

Albert Edwards
by Albert Edwards on July 10, 2019


USD recovering as markets will focus on Federal Reserve Chairman Powell’s Congressional testimony today. Powell’s comments will be closely monitored as markets are anticipating a less dovish tone. Following the Non-Farm Payrolls report last week, a 25bps rate cut is still expected; meanwhile, lower yields and slower growth is forecasted for Q2. In addition, President Trump has pressured the Feds to lower interest rates and feels the USD is too high. Markets also think there is a higher chance the Feds will not cut rates in September.

Canadian dollar highlights:

CAD defensive due to weaker oil prices and increased USD buying. Focus is on the Bank of Canada’s interest rate decision and policy statement. The central bank also said there was evidence that a slowdown in the economy was temporary. Building Permits for May was -13% (versus -10% expected); meanwhile, Housing Starts for June increased to 245.7K (versus 208.6K expected).

Euro highlights:

EUR weaker as markets prepare for the European Central Bank to cut interest rates in September. A rate cut is already priced and the chances of resuming Quantitative Easing is increasing. EUR has been under pressure due to low inflation and Brexit uncertainty. Christine Legarde will lead the central bank in November.

British pound highlights:

GBP lower as Brexit uncertainty continues to affect the economy d. The opposition Labour Party supports remaining over a no-deal Brexit and this will be significant if the new Conservative leadership fails to advance their Brexit plan by the October 31 deadline. GDP for May expecting 0.3% advancement monthly; however, markets are preparing for worse. Trade Balance, Industrial and Manufacturing Production for May also available today. President Trump said the “U.S. will no longer deal with the U.K. ambassador who called him “inept”.