Going down


Jerome Powell made no overt commitment to a rate cut at the end of this month when he called on the House Financial Services Committee. The Fed chairman did, however, point out that 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. Investors were left in no doubt that the Funds rate is about to head lower.

Other than an on-target 0.4% monthly rise in wholesale inventories, there were no helpfully positive US economic data, so no respite for the USD. It lost ground to all the major currencies.


With all eyes on the Fed chairman - both before and after his testimony - the EUR played a passive role, gaining ground from the USD whenever the opportunity arose. It is 0.4% higher on the day.

This morning's euro zone data were the consumer price index readings from Germany and France. Both were in line with forecast, Germany unchanged at 1.6% and France a little lower than expected at 1.2%. Later today the European Central Bank is expected to publish the "account" (a redacted version of the minutes) of it last policy meeting.


Oil prices chugged steadily higher, to a large extend in anticipation that lower US rates would be good for economic activity. WTI crude went up by 3%. The increase was positive for the Loonie, which rose 0.6% against the USD on a rather more erratic trajectory.

The advantage of potentially lower USD interest rates was clear enough but the Bank of Canada muddied the waters somewhat. As expected, the BoC kept its benchmark rate target steady at 1.75% and the statement made the obligatory nod to an outlook "clouded by persistent trade tensions". However, the subsequent press conference gave the impression that governor Poloz shares the same worries as Jay Powell. The CAD briefly dipped, before investors realized that it will be the Fed, not the BoC, that leads the way down.


Like the EUR, the GBP had no economic data to propel it following yesterday's trade, output and growth statistics. It followed an almost identical path to that of the EUR, strengthening by 0.4% against the USD.

The focus today is on the Bank of England's biannual Financial Stability Report, the minutes of the Financial Policy Committee Meetings on 13 June and 4 July 2019. Going by the GBP's lack of immediate reaction, analysts found nothing to trouble them in either document.


Neither the weekly international investment flows nor the Tertiary Index shed fresh light on the Japanese economic picture. The JPY was nevertheless one of the better performers among the major currencies despite the usual rule of thumb that lower interest rates mean fewer worries and less demand for safe-havens.

It strengthened by 0.8% against the USD, a slightly better outcome than the CHF's 0.5% gain.

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