The Greenback bounces back after a losing week propelled by dovish Fed officials
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USD – United States Dollar
The US Dollar Index bounced 0.19 percent this morning after it ended lower last week, following Chicago US Federal Reserve President Charles Evans comments that more monetary accommodation appears necessary to lift inflation towards the central bank’s 2 percent target. Mr. Evans, a voting member of the Fed’s rate-setting committee, said he expects to see two reductions in the central bank’s benchmark federal-funds rate this year, while Richmond Federal Reserve President Thomas Barkin says that risks were more tilted to the downside than balanced. The comments saw US yields trickle lower and the S&P close above 3,000 for the first time in history. Last week, Federal Reserve Chairman Jerome Powell strongly signaled that the central bank is ready to cut rates at its upcoming policy meeting on July 30-31 to bolster the US economy against risks from slowing global growth and uncertainty from trade tensions.
There is consensus among market participants for a July rate cut from the Fed following Chairman Powell’s two-day testimony to Congress, which put some pressure on the Greenback. However, the US dollar reversed some of its losses against currencies including the euro, pound and Japanese yen after a slightly higher than expected US CPI last week.
Key Movers
In the UK, Boris Johnson will come up against problems from political heavyweights if he attempts to suspend the UK Parliament to force through a no-deal Brexit. Johnson has refused to rule out postponing Parliament to fulfill his pledge to take the UK out of the European Union, causing a wave of reactions across the political divide from those who say they are worried about upholding Britain’s constitution. The Cable fell over 0.3 percent this morning, and the GBP/NZD pair fell even further by 0.70 percent.
While China’s GDP slowed in the second quarter to 6.2 percent, the weakest pace in 27 years, the data showed factory output and retail sales both exceeded analysts’ estimates for June. Signs of stabilization are starting to emerge in the monthly indicators for China. This latest economic data shows the slowdown remains intact, and market participants should expect further stimulus from China’s central bank this year. The asset manager Pimco said that market participants should be worried about the risk of a full-blown currency war where major central banks intentionally reduce the strength of their currencies.
SocGen joins in the growing chorus of those expecting the European Central Bank to cut its deposit rate facility in September. The firm’s economist, Anatoli Annenkov, now assumes that the ECB will cut its deposit rate by ten bps in September after introducing a “downward bias” to its forward guidance. The EUR/USD pair trades flat at 1.1267 this morning.
Expected Ranges
USD/CAD: 1.3015 – 1.3060 ▲
EUR/USD: 1.1250 – 1.1282 ▼
GBP/USD: 1.2495 – 1.2533 ▼
AUD/USD: 0.6996 – 0.7039 ▲
NZD/USD: 0.6675 – 0.6737 ▲
Posted by OFX
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