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Powell throws the dollar under a bus

No surrender

One of the questions asked of the Fed chairman by the House Financial Services Committee yesterday was whether he would leave his post if the president told him to go. The answer was no, he will serve his four-year term. So Mr Powell's dovishness is not because he is in thrall to the White House.

But dovishness it is. Although the economy is strong, employment continues to grow and inflation is expected to edge higher, Jerome Powell has concerns in other areas. Even before he turned up on Capitol Hill, the financial world was almost sure he was teeing up a rate cut for the end of this month. By the time he had finished his testimony they were certain of it.

It was not that Mr Powell talked about "a rate cut at the end of the month" or anything blatant like that. But he did point out that "uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the US outlook". And, when offered the chance to do so, he said nothing to play down the idea of a July cut of 25 or even 50 basis points. The dollar is consequently at the back of the field, an average of 0.7% lower against the other majors and down by four fifths of a cent against sterling.

When mediocrity is enough

The UK output data for May were all weaker than forecast. Economic growth in the three months to May was in line with analysts' predictions. May's trade deficit was smaller than expected. On average the numbers were, well, average and sterling is - on average - almost unchanged on the day. 

Manufacturing and industrial production both increased by 1.4% in May. Manufacturing was flat compared with the same month last year, while the broader industrial measure (including non-manufactured production such as mining) was up by 0.9%. The manufacturing numbers were particularly disappointing. It was therefore intriguing that the narrower deficit was brought about almost entirely by trade in goods.

The Bank of Canada announced that it would keep its 1.75% benchmark rate unchanged. Because the statement abandoned any pretence of a possible rate increase, the Loonie weakened briefly. It immediately clicked, though, that the real North American über-dove was 600 miles to the south. The Canadian dollar is unchanged.  

A bit more Powell

The Fed chairman makes his second Congress appearance today, this time with the Senate Banking Committee. It is possible, though unlikely, that he will say more about lower rates. The main ecostats this side of the weekend are the consumer price index readings from Germany and the States.

German inflation came in at 1.6% this morning, in line with forecast. US inflation this afternoon is pencilled in at 1.6% too. This morning the Bank of England releases its biannual Financial Stability Reports and publishes the minutes of the Financial Policy Committee meeting.

Tonight China reports on the balance of trade for June. Tomorrow's agenda is short, with little beyond Euroland industrial production and US producer prices.

GBP: Steady after average UK data

GBP: Steady after average UK data

USD: Lower as July rate cut looms

USD: Lower as July rate cut looms

CAD: Unchanged rates, unchanged Loonie

CAD: Unchanged rates, unchanged Loonie

CNY: Trade data tonight

CNY: Trade data tonight

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