Down goes U.S. Dollar with Powell dove punch
JULY 11, 2019
The U.S. Dollar is trading in negative ranges, losing major ground against all counterparts across the board following the Fed Chairman Jerome Powell’s testimony to members of the House of Representatives that painted a bad picture for the economy.
According to the central bank leader, recent data and lack of business investment is cause for concern since it looks like activity has been hurt by tariffs and a slowdown in longer-term spending. Not all is doom however, as the FOMC Minutes showed that not every member would welcome a hike right away or multiple hikes in the next 6 months.
While the reaction is understood, these current ranges are volatile since economists and traders predict other regions will follow suit in providing some financial easing to revamp economic momentum. Nevertheless, there is now pressure from industry leaders to make American products more competitive and some doubts regarding Fed activity as well as stability could continue subduing the buck.
Data-wise, Consumer Price Index (CPI) increased by 0.1% for the month when it was expected to stay flat. The yearly average is down to 1.6%, below the Fed’s 2.0% target. Powell admitted that associating high inflation with low unemployment may no longer apply since certain dynamics have clearly changed. No inflationary growth means the Fed has room to make cuts to the interest rate.
What to Watch Today…
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The Euro climbed and almost went back to its levels achieved in June following the collapse of the greenback. More importantly, economic indicators are starting to be on the side of Euro-bloc’s bigger nations, although Germany has struggled. Unlike in Germany, French and Italian Industrial Production improved dramatically, with 0.9% beating the 0.1% estimate in Italy while France witnessed an expansion of 2.1% exceeding the low 0.3% forecast.
Additionally, earlier releases of German and French CPI came in also better than expected. If there is a trend here, perhaps the shared currency can see better fortunes as July moves forward.
The Canadian Dollar rose to its strongest levels since October based on confidence shown by the Bank of Canada. It looks as if the bank is not looking to cut interest rates soon as the chances of a cut by end of the year fell to just 52.0%, unlike what many economists expected considering the stagnant nature of the Canadian economy for the year.
Oil prices also went up once again after another report on barrel production showed fewer inventories than predicted. There is potential for further appreciation of the currency as Prime Minister Justin Trudeau has promised to get the USMCA trade pact ratified. We see CAD strengthening, it is in our outlooks, and it may fully materialize.