August 21 2018

Aug. 21, 2018 (Western Union Business Solutions) – Reports that President Trump is not happy about the Federal Reserve raising interest rates hit the U.S. dollar which sank to eight-week lows. The dollar was broadly weaker Tuesday, having hit 6- and 8-week lows against the Swiss franc and yen and its lowest in nearly two weeks against the euro, sterling and Canadian dollar. The growth-bent U.S. president has reportedly taken exception with the Fed raising borrowing rates, something it’s expected to do for a sixth time under Mr. Trump’s watch in September. The dollar slipped on the president’s remarks as it called into question the Fed’s independence from political influence and gained added traction from dollar positioning having reached elevated levels of late. Yet pushing the dollar down for long could be a tough task with safer bets in vogue on worries about trade wars and Turkey’s economic crisis. Mr. Trump’s jab at the Fed puts heightened focus on a speech Friday by Fed chairman Jerome Powell.

GBP

Sterling shot nearly two cents above 14-month lows after the dollar fell prey to remarks from President Trump reportedly being displeased with the nation’s central bank raising interest rates, a move that he sees as an impediment to the U.S. economy achieving a faster cruising speed. Gains for the pound could be the short-lived variety given the headwind on the currency from how Britain is yet to strike a trade deal with the EU to keep from crashing out of the bloc come March.

USD

The U.S. dollar index flirted with two-week lows, as it fell victim to presidential criticism about the Fed raising interest rates. The remarks from President Trump came amid a lull in the economic calendar and at a time when market positioning was a bit stretched on the dollar, exacerbating its decline. Mr. Trump’s remarks put heightened focus on Fed Chairman Jerome Powell’s speech Friday at 10 a.m. ET at the central bank’s summer symposium in Jackson hole, Wyo. Should the Fed chairman signal full steam ahead for a rate hike in September it could help keep the dollar biased higher.

EUR

The euro got squeezed to its highest in nearly two weeks against the dollar which took on the chin remarks from President Trump that he reportedly isn’t happy about the Fed raising interest rates, moves that he sees as impeding his bid to shift the world’s biggest economy into a high gear. While the euro capitalized on the dollar’s retreat, gains could prove tough to sustain for long amid worries about Turkey’s economic crisis spreading to European banks.

YEN

The yen surrendered gains against the dollar that overnight had lifted it to 8-week peaks. The dust has started to settle after President Trump seemingly took a swipe at the Fed for raising rates, a blow that hit the dollar squarely on the chin. Still, the yen remains camped toward the upper end of its range as Mr. Trump’s call for lower rates exerted downward pressure on U.S. Treasury yields, capping upside in USDJPY.

CAD

Canada’s dollar romped to its highest in almost two weeks, boosted by rallying oil markets, up 1% to above $67, and President Trump’s displeasure about the Fed raising rates which he sees as standing in the way of meaningfully faster U.S. growth. Meanwhile, the prospect of higher lending rates north of the border has been a source of strength for the Canadian dollar. A parade of bullish Canadian data of late has lowered the bar for a rate hike from 1.50% as soon as September.

 


USA 

 

August 20, 2018 (Western Union Business Solutions) – An events-laden week started on a weak note for the greenback which ticked lower, but still keeping within reach of last week’s mid-2017 highs. The dollar eked out declines versus most of its top peers like the euro, yen and Canadian dollar. The market for now is giving the benefit of the doubt to U.S.-China trade talks that are set to resume in Washington starting Wednesday. The market is hopeful that the U.S.-China talks might be a stepping stone to an eventual breakthrough in trade relations between the world’s biggest economies. Central banks will take center stage Thursday through the weekend when the Federal Reserve hosts its annual symposium in Jackson Hole, Wyo. The Fed’s late summer summit could hint at the outlook for U.S. monetary policy, a key driver of the dollar’s months-long uptrend. The precarious shape of finances in Turkey and Italy remain in the spotlight, keeping underlying sentiment shaky and the greenback mostly in vogue.

Euro struggles to hold a gain

 

The euro followed the path of least resistance lower as Turkey continued to dominate the spotlight. The big source of downside risk for the euro is the degree to which European banks are exposed to Turkish assets. Meanwhile, elevated debt levels in Italy are another source of negativity for the euro with the coalition government in Rome expected to unveil a new budget and spending plans in the months ahead. Europe’s economic calendar features preliminary PMI surveys from top economy Germany on Thursday followed by revised German Q2 growth on Friday.

 

Sterling keeps above 14-month trough

 

Sterling was mostly flat at the outset of a new week with upside still restrained by uncertainty over whether Britain will reach a deal on trade with the EU before its departure from the bloc in March. Sterling currently finds itself perched a bit above 14-month lows hit last week, helped at the margin by an encouraging set of U.K. numbers last week on unemployment, inflation and retail spending that supported the narrative of gradual rate hikes across the pond.

 

Loonie pares Friday rally

 

Canada’s dollar favored its back foot after a data-inspired rally Friday. Oil prices wavered to begin the week, last down 0.3% to below $66. The loonie enjoyed a bit of a knee-jerk bounce Friday after headline inflation proved the strongest in 7 years, up 3% in July. It’s not surprising to see the loonie surrender some of its gains given the fact that core inflation remains largely contained around the Bank of Canada’s 2% goal. Still, moves to the downside in the loonie could prove limited on the view that the BOC could raise rates for a third time this year by October.

 

Fed to make headlines, potential waves, this week

 

America’s dollar index started the week with a gain, which kept it in close range of 14-month highs hit last week. The buck should have no shortage of drivers this week with U.S.-China trade talks set to resume Wednesday after a months-long recess. The big item on the dollar’s calendar is the Fed’s late summer symposium of global central bankers that begins Thursday and runs through the weekend. Markets will be all ears for fresh policy signals from Chairman Jay Powell. A tone that plays up the strong U.S. economy and plays down overseas uncertainties like Turkey would help to keep both U.S. interest rates and the greenback biased higher.

 

 

 

By Joe Manimbo, Senior Market Analyst