The Dollar fell back further this week as the Fed chair Jerome Powell all but confirmed that the bank would look to cut rates by 25bp at the end of the month. The latest Non-farms numbers are doing little to dissuade the central bank from cutting rates.
In a prewritten statement in front of lawmakers at Capitol Hill Powell cited that two scenarios could impede the US economy, notably the unresolved trade war with China and the loss of momentum in the global economy.
Providing testimony Powell stated for the record:
“It appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the US economic outlook”.
His testimony was the first of two this week, with the chair-woman of the House of Financial Services Committee Maxine Waters, imploring Jerome Powell to resist the pressure of Trump and not succumb to his demands for significantly lower interest rates.
News this week on developments in the US-Chinese negotiations have been fairly thin on the ground. The FED has taken centre stage, luckily Trump has kept everyone in the loop and stated in recent days that he is in no rush to conclude a trade deal. Comments that almost certainly attributed to the losses seen in the Dollar.
It would also appear that China remains foolhardy and despite being mooted as part of potential trade deal terms, Beijing is continuing to allow state-owned companies and communist party members to involve themselves in the activity of private companies.
Trump’s trade negotiators had been insistent that Chinese state-owned companies should be subject to reform as part of any trade deal. Therefore, the continuation of the state-led economic model will do little to advance talks or placate President Trump.
Also speaking this week was Mark Carney head of the Bank of England who also commented on the state of the global economy. In a stark warning, Carney stated that the continuing trade wars being waged by the US could ‘shipwreck’ the global economy, continuing he stated that he believed that many global policymakers were significantly underestimating the potential ramifications of the trade war. Business investment across the G7 nations has almost halved since its height in 2017 with the effects being witnessed in manufacturing, industrial production and order numbers all feeling the pinch of a global slowdown.
Carney’s warnings were bolstered later in the week when Singapore posted hugely disappointing figures GDP figures, seeing an annualised contraction of 3.4%. The export-reliant nation experiencing shipments dropping the most since 2013. The posted number provoking the Singaporean Finance minister to state that they would review growth forecasts to between 1.5-2.5%.
Economists believe that although this quarter’s figures have been weak, a continual standoff between the US and China could see the issue become much more significant.
The issues don’t just appear to be being highlighted overseas. Business confidence in the US remains low with opinions on Trump’s approach to protectionism polarising voters. Regardless of the opinions of Carney Trump is clearly hellbent on getting the desired outcome on trade talks and they would appear unlikely to progress quickly.
The Dollar mustered up a decent run following the bonanza nonfarm payroll numbers. Powell’s testament on the risks linked to the economy have proved more sobering and the Dollar has lost pace against a basket of major currencies including Sterling.
Cable has increased from a low of 1.2447 to a height of 1.2575 on Friday with appetite clearly waning for the Dollar. Whether the Pound can surpass the 1.26 marker will have to be seen, especially with the new prime minister due to take charge on the 22nd, this, in turn, has the possibility to spark a general election in order for the conservatives to gain a majority.
The Euro has also enjoyed decent gains against the Dollar with a sharp rise witnessed during Powell’s statement with EUR/USD shooting from 1.1215 to 1.1251, the pair have continued to rise as investors diverted away from the Dollar. The pair closing at 1.1271 at the end of the US trading session on Friday.
This week’s upcoming US data includes core retail sales and retail sales. There is also another market speech from Jerome Powell which takes place in Paris and FOMC member Charles Evans is due to take questions on CNBC.
It would be very unlikely to for either FED member to divert away from current consensus and therefore investors will have to look elsewhere for USD volatility.