FX markets assuming Fed rate cut now turn to US-China trade talks and Brexit for direction
Peter Compton " | July 12, 2019
After Fed Chair Powell implied a rate cut at July month-end, the US dollar has been steadily weakening. The Fed largely ignored the better than expected US jobs data for June and will remain on a rate-cut course absent any extraneous shock.
July 12, 2019
EUR/USD 1.1245 GBP/USD 1.2542 USD/CAD 1.3033 AUD/USD 0.6992 USD/JPY 108.17 USD/CNH 6.8847 USD/ILS 3.5536 USD/MXN 19.0335 USD/CHF 0.9865 USD/INR 68.6837
The US dollar is softer continuing this week’s trend mostly stemming from global FX traders digesting recent cautious comments from Fed Chair Powell. Powell stated at his congressional testimony that the uncertainties in the US economy “have increased in recent months” – thereby leading the markets to anticipate a rate cut at the July 31 FOMC meeting. A release this morning of higher than expected PPI data for June is not likely to sway the Fed enough to avoid the strongly telegraphed rate cut.GBP
The pound continued gains vs. the US dollar for a third day mostly on overall dollar weakness. Weaker UK economic data this past week along with no-deal Brexit scenarios gaining probability are largely priced into the current FX rate.EUR
The euro weakened overnight despite Eurozone Industrial Production for June beating estimates. ECB’s last governing council meeting confirmed investors’ expectations around monetary policy - the minutes showed policymakers agreed that the ECB should be “ready and prepared” to restart monetary stimulus measures.CAD
The Canadian dollar continues to trade at its strongest levels of 2019 vs. the US dollar. Traders see the interest rate differentials (US 2.50% and CAD 1.75%) closing while oil prices stabilize.ASIA/PACIFIC
The Chinese renminbi weakened overnight as traders position in front of Sunday’s Q2 GDP release where a reading of 6.2% is expected. China trade data for June showed a drop in imports thereby raising the trade surplus.
The Australian dollar strengthened against the greenback continuing a trend of higher commodity prices supporting commodity exporting countries.