Dollar on Back Foot as Fed Dovish Rhetoric Continues
The US dollar is lower across the board against major pairs. The greenback is on its way to three consecutive losing trading sessions after Fed members went full dove in their comments this week.
Fed Chair Jerome Powell was the biggest factor on the dollar’s decline by testifying twice this week in Washington about monetary policy.
Powell kept up the dovish rhetoric and has the market fully pricing in a rate cut at the end of the month. The timing seems no longer in question, but the size of the cut is still open to speculation.
US economic indicators remain mixed and inflation although subdued it is holding its ground, putting question marks around a 50-basis points rate cut. St. Louis Fed Chief Bullard was the lone supporter of a rate cut in June and even he seems to think 50 basis point would be too much at this point in time.
US retail sales data to be published on Tuesday, July 16 at 8:30 am EDT is another opportunity to validate an easing move by the Fed if the pessimistic forecasts are met or potentially missed. The flip side could be a surprise rebound of retail sales, putting even more doubt around the number of rate cuts and the depth of the monetary policy easing.
EUR/USD Fed Rate Cut Puts Downward Pressure on Dollar
The euro gained 0.41 percent versus the dollar in the past five trading sessions. The single currency is trading at 1.1271 after rhetoric from the U.S. Federal Reserve continues to signal a rate cut in July.
Major central banks have all gone over the dovish side, but the fact the Fed managed to end its easing cycle and started a tightening one, means it can be more active.
The Fed is forecasted to reduce rates by 75 basis points this year, something the European Central Bank (ECB) cannot match as the European interest rate is zero, leaving only negative rates and quantitative easing as realistic options this year.
The rate cushion the Fed can cut into means the dollar could fall further than the euro if the Fed once again takes point on slashing rates.
US stocks are no strangers to lower rates and continue to rack up to record territory after the Fed is near a full 180 degree turn on monetary policy. The US central bank hiked rates 4 times in 2018, but market conditions and a mixed economic picture with growing trading headwinds has forced the hand of the Fed into reducing the benchmark rate.
OIL – Crude Rises on Soft Dollar and Weather Disruptions
Oil prices rose slightly on Friday but had solid gains on a weekly basis. West Texas Intermediate gained 4.75 percent and Brent 4 percent on the back of Middle East tension, Gulf of Mexico weather disruptions and dollar softness after a rather dovish week for the Fed.
US inventories recorded a larger than expected drawdown of 9.5 million barrels boosting prices higher in the short term, even as there are serious concerns about future demand. The OPEC and the IEA both downgraded energy demand for next year, and with rising US production prices could be facing a supply glut.
Oil prices are caught between supply concerns with Middle East tensions and weather disruptions in the US are driving prices higher but the threat of higher US production and cooling global demand for energy is looming.
The OPEC+ production cut agreement stabilized prices, but something else is needed to anchor prices as they could start sliding downwards as the US shale industry puts another gear in and a prolonged trade war raising global growth concerns.
GOLD – Yellow Metal Higher as Dollar Retreats on Fed Rate Cut
After a bout of profit taking on Thursday, the yellow metal was once again higher against the US dollar on Friday. Gold was boosted by the marathon of Fed Speakers last week sticking to the dovish script that is fully pricing in a July rate cut.
The Fed is under pressure to deliver a rate cut to keep onside of market expectations and to give itself some breathing room from the White House who has demanded lower rates.
The US dollar is weaker this week after Fed Chair Powell kept the dovish rhetoric flowing. Gold has retaken its place as a top safe haven with the US engaged in multiple trade fronts, sanctions and with major central banks about to once again coordinate to keep rates low.
Demand for physical gold has gone down as global growth estimates have been pressured by the prolonged trade war, but the resurgence of the metal as a safe haven will keep it bid
BITCOIN – Trump and Trust Issues Pressure Bitcoin
Bitcoin fell below 11,000 at the end of last week and continues to trade lower as comments from President Trump put downward pressure on the crypto currency.
Surprisingly the crypto currency has remained steady despite supply issues and a Japanese hack scandal.
Drawing the ire from President Trump did take the currency below its resistance level of 11,000 and it could fall further to 8,000 giving back all the gains made in June but it might have also given it some much needed publicity.
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