June 2019

June 28, 2019 (Western Union Business Solutions)  –  The greenback was subdued ahead of data that could cement an imminent reduction in U.S. interest rates. The euro, yen and the quarter’s best performer – the Canadian dollar – all ticked higher. Sterling also firmed while emerging markets softened, a reflection of a cautious mood ahead of tomorrow’s trade talks between the U.S. and Chinese presidents. Ahead of the Trump-Xi meeting Saturday at 11:30 a.m. local time (Friday 10:30 p.m. ET), all eyes will be on U.S. personal income and spending and the Fed’s main inflation yardstick. Both incomes and spending are expected to rise but underlying inflation is forecast to steady at a low 1.6%, below the Fed’s 2% goal. Tame inflation would allow cover for the Fed to cut rates as soon as its next meeting in late July. The dollar steadied above multimonth lows this week after Fed officials tempered expectations of bold rate cuts in the months ahead.

EUR

Up about 2% in June, EURUSD was on pace for its best month in nearly 1 ½ years against the greenback. The euro firmed thanks to data showing a bigger than expected rise in euro zone core inflation which moved to 1.2% from 1%. While higher, underlying inflation continued to run well below the ECB’s near 2% goal. The weak outlook for inflation and growth keeps pressure on the ECB to deliver stronger stimulus in the months ahead, policies that would put a headwind on the single currency.

CAD

Canada’s dollar extended its stellar run after better than expected data. Canada’s economy grew at a 0.3% rate in April, above forecasts of 0.1% from a 0.5% in March. The data added to evidence of Canada’s economy turning the corner after a recent slowdown. Canada’s resilient economy suggests a lower chance of the Bank of Canada cutting interest rates. By contrast, the market expects America’s central bank to cut rates next month. Canada’s dollar was poised to finish the month in first place with a 3% rise against the greenback.


USA 

June 19, 2019 (Western Union Business Solutions)  – The U.S. dollar fell after the Fed left interest rates unchanged but issued a dovish statement that validated market expectations of multiple rate cuts by year-end. As expected, the Fed left its main rate in a range between 2.25% and 2.50%.

The Fed’s interest rate forecasts ran the gamut with eight officials anticipating lower rates, eight expecting no change, and one seeing a rate hike by Christmas.

The Fed’s new forecasts for the U.S. economy this year left its growth outlook unchanged at 2.1%, while it expects lower unemployment (3.6% vs 3.7% in March) and lower underlying inflation (1.8% vs 2.0%).

The Fed said it would “act as appropriate” to help defuse threats to the economy from slowing global growth and trade wars.

Key for the dollar and Fed policy going forward will be coming data on June employment and second quarter growth and next week’s Trump-Xi meeting.

The market is pricing about an 85% likelihood of the Fed cutting rates when it announces its next decision on July 31.

Fed Chairman Jerome Powell is about to address the media so it may be a while before the dust settles on the central bank’s decision. But once it does settle, the market will be left with a U.S. central bank that may not be as dovish as rivals in Europe and elsewhere, a dollar-positive notion.

 

 

June 7, 2019 (Western Union Business Solutions)  – The US economy  added lesser than expected  75k jobs in May sending the USD lower today, while  stronger than forecast Canadian hiring last month catapulted the loonie to 1 ½ month peaks against the greenback.

Canada’s economy appears to be bouncing back after a slowdown after data showed an addition of 27,700 jobs in May, a print more than three times better than forecasts of a gain of 8,000. Unemployment fell to a record low of 5.4%. Wages grew at a steady 2.6% annual clip. The news depicted a resilient economy and lowered the risk of the Bank of Canada cutting interest rates this year. Higher oil above $53 was also loonie-positive.

The dollar index crashed to late March lows after weak hiring dialed up pressure on the Fed to cut interest rates. America added only 75,000 jobs in May, a print far below forecasts of 185,000. Unemployment held at a 50-year low of 3.6%. But wage inflation moderated by a tick to 3.1%. The drop off on hiring was consistent with slower second quarter growth and offered evidence of downside risks to the economy from trade wars materializing. Today’s overall lackluster jobs report suggested a higher risk of the Fed cutting rates from 2.5% at a coming meeting with its next decision due June 19.

The euro’s more than 1% gain for the week had it on pace for its best performance of 2019. The euro capitalized on dollar weakness and an ECB decision this week that was perceived as less dovish than expected. A general lid may be fastened on the euro, however. That’s because gauges of long-term inflation expectations in the euro zone have fallen, a situation that if sustain would increase pressure on the ECB to strengthen stimulus.