U.S. Dollar starts dwindling after Fed rate cut
SEPTEMBER 19, 2019
The U.S. Dollar lost some ground overnight to major counterparts that also had their central banks make decisions on monetary policy but differed in direction.
The Bank of England, the Bank of Japan, and the Swiss National Bank all chose to remain put instead of lowering interest rates as the Federal Reserve did by 25 basis points. It seems like there is not much room for these banks to exercise easing methods, however, the BOJ did vow to put together further QE, sovereign bond purchases, if deemed necessary by year’s end. Naturally, the greenback lost momentum, but FX flows have not dramatically changed.
The Mexican Peso and Canadian Dollar also benefited from the cut to the Federal Funds Rate, which reversed the negative impact of dwindling oil prices now that WTI Crude is less than $60.00/barrel. The change in fortunes came as Saudi Arabian officials said they could match the losses in oil supplies post-attack and would revamp their productivity in the next few months to meet demand. Expect the buck to perhaps concede some ground as the weekends.
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The Euro found some support as the Fed decided to cut. Following the ECB meeting, we now understand that few central banks can even think of cutting rates since they applied it for years after the crisis. Now that the Fed seems dovish, the buck could be susceptible to losses, but ultimately data has maintained faith in the dollar steady regardless of the interest rate decisions.
Tomorrow we shall see if European Purchasing Managers Indices rise, especially in manufacturing where contraction has been the characteristic. Data will be what sparks Euro value and tomorrow would be a place to start.
The Pound is looking for reasons to keep rising very slowly as the Bank of England chose to unanimously keep policy unchanged. Recent reports have indicated that BOE Governor Mark Carney, who has been in charge while dealing with Brexit and is near the end of his term, will likely be asked to stay regardless in order to maintain consistency as the country goes possibly through major financial shifts with or without a Brexit deal in place.
Although Parliament is out and courts will decide if members can be recalled right away, there is a sense that most politicians, as well as business leaders, are willing to compromise on having a deal instead of exiting without one. Labour Party leader Jeremy Corbyn finally made his and the party’s position clear that if a snap election is called, he will campaign for the population to have a second referendum over the Brexit question to leave or remain. All this bodes quite well for Sterling strengthening.