US Senate

Aug. 2, 2019 (Western Union Business Solutions)  – The U.S. dollar kept below multiyear peaks as solid jobs data wasn’t enough to allay concerns about the amped up trade war. Making good on the Fed chairman’s generally rosy outlook for U.S. growth, America’s jobs report met forecasts with a gain of 164,000 in July, a healthy amount that kept unemployment at a low 3.7%. Wages surprised to the upside with a 3.2% annual increase. If not for the trade troubles, a print like today’s would be consistent with a stronger dollar and only minor interest rate adjustments by the Fed.

EUR

The euro stabilized above 26-month lows thanks to the dollar’s trade war-induced decline. It also helped at the margin that euro zone retail sales surprised to the upside with a 1.1% jump in June, which easily cleared forecasts of a modest uptick. Still, the data shouldn’t offer meaningful support to the euro, particularly after the previous number got downgraded, underscoring the bloc’s poor prospects.

JPY

Safer bets like the yen and Swiss franc were the initial winners of the surprise escalation in the U.S.-China trade war. The yen turned the tables on the dollar, as USDJPY plunged by 2 ½ yen to late June lows. The ongoing trade feud has been credited with slowing global growth and the latest round only increases the headwinds. Treasury yields collapsed, weighing on the dollar and suggesting a higher likelihood of the Fed cutting rates again in September.

AUD

The Aussie dollar crashed to seven-month lows after the latest salvo in the U.S.-China trade war added to the dim outlook for Australian growth, a scenario that suggests a low bar for the Reserve Bank to lower lending rates from 1%. The RBA could take action as soon as its Aug. 6 meeting.

CAD

The loonie lurched to new six-week lows despite good news on the Canadian economy. Canada logged a surprise trade surplus of C$136 million in June, its second surplus in as many months. However, the size of the surplus moderated from a downwardly revised C$556 million in May. Sustaining a trade surplus appears tougher for Canada after the latest intensification of the U.S.-China trade war. The loonie also appears a bit hungover after oil’s biggest single-day swan dive in more than four years, when it shed more than $4 and closed Thursday below $54.

 

 

 

 


USA 

Aug 1, 2019 (Econoday) – The August BoE MPC meeting again lived up to market expectations and left policy on hold. Bank Rate remains pegged at 0.75 percent and the ceiling on QE at £445 billion (of which gilts, £435 billion). The vote was another unanimous 9-0.

Sterling resumed a slide against the greenback that knocked it to 2 ½ year lows.

The MPC also opted to retain a tightening bias under which the Bank believes that ‘‘..increases in interest rates, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2 percent target..”. However, compared with June, the bias has been modified slightly and higher rates now require both a smooth Brexit and some recovery in the global economy. In line with the Fed and a number of other central banks, the UK monetary authority would seem to be attaching increasing weight on international developments.

Under its central case scenario (smooth Brexit), CPI inflation is expected to climb on the back of excess demand and stand at 2.4 percent at the end of the 3-year forecast horizon. In other words, the current stance of policy and market pricing for borrowing costs in the future remain too accommodative to meet the medium-term inflation target. Interestingly, the Bank still sees excess demand even in the event of sterling appreciating by as much as 10 percent.

Brexit uncertainty again ruled out any policy shift today but the new Quarterly Inflation Report (QIR) still shows no quantitative analysis of what a no-deal outcome might mean for GDP and consumer prices. In line with previous meetings, the August minutes adhere to the official line that any monetary policy response to whatever shape Brexit finally takes will not be automatic and could be in either direction.

Apart from the amendment to the policy bias, there is little here for financial markets to chew on. The next move in official rates could be up or down but, in either eventuality, the chances are that it will not be for some time.

July 31, 2019 (Western Union Business Solutions)  – If this week’s Fed meeting was a test of dollar strength, the U.S. unit passed with high marks. The dollar cruised to new highs after the Fed fired its first rate cut in a decade. The greenback clocked May and June highs against the yen and Canadian dollar, respectively, and motored to its strongest in over two years against the euro and sterling. The dollar took comfort from the Fed maintaining an upbeat outlook for the world’s biggest economy. Dollar bulls were particularly emboldened by the Fed ruling out a “lengthy” rate cutting cycle, dubbing its action as a mere “mid-cycle” rate adjustment. Markets responded by scaling back expectations of lower U.S. interest rates, thereby assigning a brighter outlook for the greenback. The dollar faces more tests of strength in U.S. data today on manufacturing and tomorrow on the job market.

EUR

A hawkish rate cut from the Fed this week drove the euro through a key floor to its weakest level in 26 months against the greenback. Meanwhile, data Thursday confirmed the weak state of Europe’s manufacturing sector, a key growth engine for the export-driven economy. European numbers this week showing lower inflation and a sputtering factory sector intensified pressure on the ECB to deliver stronger stimulus at its next meeting in September.

GBP

Sterling resumed a slide against the greenback that knocked it to 2 ½ year lows. No Bank of England rescue for the pound, as all nine officials voted to keep interest rates at a low 0.75%. Britain’s central bank also downgraded its outlook for U.K. growth this year in the face of turn for the uncertain Brexit has taken. The world’s No. 5 economy, meanwhile, remained stuck in a soft patch as data confirmed British factory activity contracted from the third time in as many months in July.

CAD

Canada’s dollar tumbled to six-week lows against the greenback after the Fed cut rates but played down prospects of a “lengthy” easing cycle. USDCAD’s buoyancy will face scrutiny in U.S. and Canadian data Friday on trade. However, the main focus tomorrow will be on America’s employment report for July. Solid job growth would weaken the case for the Fed to follow up this week’s rate cut with another anytime soon, a scenario that could push USDCAD higher.

America’s dollar reigned as it rolled to new highs for the year against a wide swath of rivals. Any rate cuts by the Fed appear to be modest instead of the bolder cuts that market had priced in. The Fed cut rates this week for the first time in years but it signaled the move was more insurance to safeguard the economy from global headwinds. The Fed upended market expectations of three or more rate cuts by year-end, resulting in a brighter outlook for the greenback. How high the bar is actually set for rate cuts should hinge on U.S. data. That puts the focus on today’s ISM manufacturing index and tomorrow’s influential nonfarm payrolls report. Prints that back the Fed’s favorable baseline outlook for the U.S. economy would bode well for sustainable dollar gains.

 

July 25, 2019 (Western Union Business Solutions)  – The euro slumped to two-year lows after the ECB all but eased policy at its latest meeting. The ECB left its main interest rate at zero and the deposit rate at minus 0.40%. The ECB affirmed its low rate pledge, vowing to keep rates low for at least another year or for as long as it takes to boost growth and inflation. Barring a surprise brightening in the outlook for Europe’s economy, the stage appears set for rate cuts or other action at the next ECB meeting on Sept. 12. The euro’s tenacity so far to hold above key support triggered a short-covering rally in its favor.

GBP

The U.K. pound held its chin above 27-month lows as the market digested the cabinet makeup of Britain’s newly installed prime minister, Boris Johnson. Britain’s new leader appeared to assemble a team of mostly Brexiteers, or those who favor the U.K. leaving the EU. Underlying sentiment remains bearish for sterling after weak U.K. data offered more evidence of a decelerating economy. A gauge of consumer spending fell for the third month in a row in July, a sign that an expected slowdown in the second quarter may have bled into the third quarter.

CAD

Canada’s dollar found some footing as the price of oil rose toward $57. USDCAD largely kept to a range as traders monitored the ECB’s policy announcement and hunkered down for critical U.S. data on growth and inflation that will offer the last meaningful looks at the world’s biggest economy before next week’s Fed meeting.

USD

The U.S. Dollar Index climbed to late May highs on the back of bullish U.S. data and a dovish policy decision from the ECB. Weekly jobless claims and durable goods both surprised to the upside with the former back around half-century lows. The strong data suggested any rate cuts by the Fed would be the modest insurance variety and not the start of a full blown easing cycle. Look for America’s rate debate to be stirred by second quarter growth Friday and numbers next week on consumer spending and inflation.

 

 

 

 

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.

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.

 

May 31, 2019 (Western Union Business Solutions)  – Trade tensions kicked into a higher gear Friday to the benefit of the yen and the detriment of the Mexican peso. America’s dollar was mixed but mostly subdued as losses of nearly 1% against the yen overshadowed new highs versus rivals from the U.K., Canada and Mexico. The euro ticked higher though its rise lacked conviction. President Trump threw another log on the fire of global risk aversion after he announced new tariffs on Mexican imports in a bid to stop migrants from crossing the southern border. The news heightened fears of aggressive trade policy slowing growth in the U.S. and globally, sending stocks and oil markets swooning, and investors ducking for cover in safer currencies like the yen, Swiss franc and greenback. A slew of U.S. data to close out the month could add to the rise in market volatility.

Euro scores a technical victory 

The euro largely treaded water as gains against sterling translated into general support. The euro’s ability to keep above support allowed for a technical victory. Still, bouts of euro strength have lacked conviction on account of the bloc’s underperforming economy and concerns about Italy, the euro zone’s debt-choked No. 3 economy. Next week looms large for the euro with big-ticket euro zone data Tuesday on inflation and unemployment which could serve as a preview to Thursday when the ECB issues as policy update. Weaker inflation would increase the risk of the ECB at least laying the ground work for another round of euro-negative stimulus.

Goodbye May, hello new lows

Sterling capped off one of its worst months in a year with a slide to fresh January lows against the greenback. Key support for the pound gave way, a reflection of growing fears of Britain crashing out of the EU without a trade agreement. GBPUSD is down about 3.4% this month, putting it on course for its worst month in about a year.

Peso tumbles to 2019 lows

Mexico’s peso crashed to 2019 lows after the outlook for the nation’s economy darkened after President Trump announced a new 5% tariff on everything that Mexico sends above the border. The risk-averse backdrop compounded the peso’s plunge with the Mexican currency down nearly 3% plunge to December 2018 lows against the greenback.

Yen soars to 4-month peaks

A nearly 1% surge in the yen drove it to four-month peaks against the greenback. The yen is the initially winner of America’s decision to announce new tariffs, this time on its southern neighbor. Global risk aversion sent U.S. Treasury yields to new lows, making the greenback a less appealing bet.

Loonie pares losses after data  

Canada’s dollar pared losses after it notched new five-month lows. Canada’s economy ticked higher during the first quarter but the 0.4% pace of annual growth, which followed a 0.3% rate in Q4, fell short of forecasts. While disappointing, it helped that March growth (0.5% vs expectations of 0.3%) proved stronger than expected and suggested the economy entered the second quarter with more momentum. The data largely fit with the view of faster second quarter growth. Oil down more than 2% and around $55 doesn’t bode well for commodity currencies.

Cool runnings: U.S. inflation

The dollar favored its back foot after tame U.S. inflation depicted an opening door to a Fed rate cut. Consumer incomes rose and their spending increased but inflation remained scant with core prices up an annual rate of 1.6% in April, several notches below the Fed’s 2% goal. While the dollar has outperformed and raced to two-year highs, the latest trade frictions carry a negative element for the greenback. The potential hit to U.S. growth from trade conflicts has the market increasingly convinced that the Fed may need to slash borrowing rates at least once this year to ward off recession risk.

 

 

 

May 22, 2019 (Western Union Business Solutions)  – The euro was broadly steady with many players keeping to the sidelines on the eve of European elections. All eyes will be on how far right candidates fare in the Thursday to Sunday voting. Meanwhile, the euro’s winning streak against the embattled U.K. pound was on the cusp of a record. Another win today for EURGBP would mark the 13th consecutive day, the longest since the single currency’s inception in 1999. A wild card for the euro: Thursday data on German factory growth, seen contracting for a fifth straight month.

GBP

Sterling deepened a slide as it fell to new lows, hitting its weakest in more than four months against the greenback. Against the euro, sterling was on track for a record 13th straight day of losses. While down the pound may not be out, especially if Brexit should ultimately get called off. Still, heightened uncertainty over all things U.K. politics suggests that things could get worse before they get better for the pound. Meanwhile, underwhelming U.K. inflation today didn’t do the pound any favors as it argued against Britain raising interest rates anytime soon.

CAD

Canada’s dollar surged to one-month highs after bullish consumer spending suggested the Bank of Canada would not entertain an interest rate cut from 1.75% when it meets on May 29. Retail sales jumped by 1.1% in March, exceeding expectations. Adding to the report’s rosy glow, spending in February got revised higher. The data offered evidence of how months of strong hiring and low unemployment have started to translate into meaningful consumer spending, a good sign for first quarter growth, due on May 31.

May 7, 2019 (Western Union Business Solutions)  – A critical week is brewing as the final round of Brexit negotiations between the government and Labour begins today. Hopes of a cross-party consensus being reached are beginning to cool as both the Conservative party and Labour party appear to be losing confidence and trust in one another.

In a data-dry week until Friday, Sterling will be driven by Brexit updates and sentiment trading. An influx of key economic data wraps things up on Friday with UK quarter one GDP data and industrial and manufacturing output headlining.

Despite a somewhat hawkish Bank of England (BOE) meeting last week, Sterling traders barely blinked, still unnerved by Brexit-related uncertainties. BOE Governor Mark Carney warned that interest rates could be raised more frequently in the future, but instead of rising, Sterling stumbled.

Clearly the fog of Brexit still hangs firmly over Sterling and any fresh news that emerges this week could spark some more life into the politically charged British Pound.

USD

The US Dollar took a tumble last Friday following the mixed US jobs report. Although the non-farm payrolls figure exceeded expectations, wage growth underwhelmed. Sluggish wage growth means inflation could remain lower for longer in the US, which may pressure the Federal Reserve to cut rates over the next twelve months.

US Consumer Price Index (CPI) comes out Friday and will be closely monitored by traders. Aside from inflation, the dollar is being driven by risk-sentiment trading associated with US-China trade talks.

Negotiations between the world’s two largest economies resumes this week, but after US President Donald Trump threatened to raise tariffs on imports from China, investors have been left unsettled. Trade tensions echoed around markets and safe-haven currencies like the Japanese Yen and US Dollar appreciated yesterday, while riskier emerging market currencies depreciated.

 

AUD & NZD

 

After another difficult week for both the Australian and New Zealand dollars, this week comprises of key monetary policy meetings from the central banks of both countries. The Reserve Bank of Australia (RBA) held its meeting earlier this morning and the Reserve Bank of New Zealand (RBNZ) holds its meeting Wednesday morning.

The RBA left interest rates unchanged at 1.50% and AUD is up across the board as a result. There was growing speculation that the RBA might cut interest rates following Australia’s lacklustre inflation readings of late. The central bank did keep rates steady, but the prospect of a rate cut in the future remains on the table.

Growing speculation that the RBNZ will cut rates tomorrow has weighed on the NZD or so-called “kiwi.” Interest rate futures are pricing a 44% chance of the RBNZ cutting rates tomorrow, which could send the kiwi tumbling even lower.