Macro economics

Analytics on 11/07/2019. Dollar knocked by dovish Fed

European stocks lost their steam after the initial rise on Thursday. Earlier, investor optimism was fueled by Powell’s comments who told the House Financial Services Committee in a prepared testimony that the central bank will “act as appropriate” to sustain expansion as “crosscurrents” are weighing on the economic outlook. Markets took the message as a dovish hint and lifted risky assets across the board, while dollar stumbled. Meanwhile, Bank of England’s Financial Stability Report suggested that local banks hold enough capital to cope with the simultaneous risks of a no-deal Brexit and a global trade war. At the same time, policymakers warned that a slide in overseas investment into some British assets due to Brexit does pose a risk to the wider economy. Also, France became another country to enter a dispute with the US as Trump ordered officials to investigate French plans to tax large tech companies.

Against this backdrop, the UK’s FTSE 100 declines by 0.06 per cent to 7525, Italy’s FTSE MIB adds 0.53 per cent to 22,162, France’s CAC 40 gains just 0.08 percent to 5,572, while German DAX 30 is 0.20 per cent lower to 12,348. US stock index futures are edging higher on the back of Powell testimony that signaled easier monetary policy could be implemented later this month.

The dollar remains under the selling pressure, digesting the dovish message from Powell. Against this backdrop, EURUSD registered one-week highs marginally below the 1.13 handle. By the way, the pair barely reacted to the ECB minutes from the last meeting which showed the Governing Council is ready to ease policy further in light of declining inflation expectations and the ongoing slowdown in the bloc. Earlier, the common currency derived some support from decent German CPI data. The pair’s behavior shows that traders are now focused on the upcoming easing by the Federal Reserve, and rising expectations for a rate cut this month put further pressure on the dollar across the board.

Meanwhile, in commodities, Brent encountered a local resistance around $67.60 and slipped back to the $67 area. Earlier, the rally was fueled by positive EIA data, a weaker dollar, tensions around Iran and fear of a tropical storm in the Gulf of Mexico. But OPEC’s monthly report capped the upside afterwards. The cartel expects that world demand for its crude oil will decline next year as rivals, including the US, pump more. The organization expects demand for its crude is expected to average 29.3 million barrels per day in 2020, down by around 1.3 mb/d from 2019. Non-OPEC oil supply is forecast to grow by 2.4 mb/d in 2020, higher than in the current year. As details of the report showed, Saudi Arabia added to rising inventories with an output increase of 112,000 barrels in June, while Nigeria reported a notable output increase of 307,000 barrels.

Nathan Lambert, Head of Global FX Analytical Department

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Interest rates

Country Rate Value
USA Federal Funds 1.75 %
Switzerland 3 Month LIBOR Range -0,75 %
United Kingdom Repo Rate 0,75 %
EU Refinancing Tender 0,00 %
Japan Overnight Call Rate -0,10 %
New Zealand Official Cash Rate 1 %
Australia Cash Rate 0.75 %
Canada Overnight Rate Target 1,75 %
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