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Greenback stronger on Fed outlook

Currency-Market-Update-Friday-2
Albert Edwards
by Albert Edwards on August 02, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD higher after Federal Reserve Chairman Powell’s speech following the rate cut. Markets remain confused and are now repricing the outlook for further monetary policy by the Fed. Powell stated that this rate cut was not necessarily the beginning of a series of rate cuts (still a 20% chance of another rate cut in September after Powell’s dovish comments). The Fed cut interest rates by 25bps and a mid-cycle adjustment of policy to extend economic expansion longer (due to global growth and trade concerns). Meanwhile, President Trump announced he will impose an additional 10% tariff on the remaining $300 billion worth of Chinese imports to the U.S. (starting September 1, 2019). Trump is disappointed that China decided to re-negotiate after he thought he had a deal. China agreed to buy more agricultural products from the U.S. in large quantities and Trump is not satisfied with the result. Initial Jobless Claims for last week was 215K (higher than expected 212K and previously revised to 207K). Markets will focus today on the Unemployment Rate for July (expecting 3.7% and same as June).

Canadian dollar highlights:

CAD defensive after the Federal Reserve cut rates and failed to signal if more cuts are coming. Crude oil prices also dropped nearly 2% to put more pressure on CAD. Markets expected more rate cuts from the Federal Reserve, and this caused oil prices to fall. Meanwhile, the Manufacturing Index increased to 50.2 in July (from 49.2 in June) and this was the first expansion since March. Also, employment for manufacturers increased at the fastest pace in five months. Trade developments, crude oil prices and Bank of Canada monetary policy will determine the direction of CAD.

Euro highlights:

EUR weaker after the Eurozone Manufacturing Index for July reached contraction (46.5). The rate of decline for new orders was the second highest in six years (due to ongoing trade tensions, political uncertainties and difficulties in the automotive industry). Retail Sales for June expecting 1.3% increase yearly and Producer Prices expecting 0.8% gain yearly today.

British pound highlights:

GBP continues to drop due to increased fears of a hard Brexit. Bank of England Governor Mark Carney is still optimistic that a no-deal Brexit will be avoided and stated that it remains the U.K. government’s official position that they will attempt to reach an agreement. Meanwhile, markets are still skeptical and this is causing GBP weakness. The central bank is expected to hold interest rates and markets will focus on how Carney will respond about the effect on the economy of a hard Brexit.

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