Greenback weaker as interest rate cut set to become reality…
Wednesday was a busy day for market moving events and economic data. The bigger picture saw renewed pressure on the greenback as rate cut expectations rise.
The day started off with a round of UK numbers which helped ease concerns over the state of affairs within the economy. The data in itself was soft and reinforces the idea that the UK remains firmly on a path to much weaker growth, if any. However, after last week’s ghastly UK PMI readings, which saw manufacturing at the worst levels in 78 months and construction at its lowest output since 2009, yesterday’s industrial & manufacturing production numbers were not as bad as many feared. In addition 3/3month GDP printed at 0.3%, quite a surprise to many economists. The pound saw a mild bounce following these figures.
The main event of the day was Fed chair Jay Powell’s testimony. To summarise – a rate cut of 0.25% is very likely to occur later this month at the central bank’s next monetary policy meeting. Powell highlighted US/China trade tensions and softer than expected inflation readings as a big factors in the decision making process. Additionally, he stated that this month’s strong jobs report does not put him off taking action to reduce rates due to the strong case created by various other factors. The buck immediately began to free fall, the GBPUSD pair rallied up to $1.25 and eventually broke through, trading up to $1.2540 in the overnight Asian session.
Later in the day minutes from the June FOMC meeting were released. The details were in line with what Powell had stated earlier that afternoon. The Fed are ready to act and believe the economy requires a small amount of stimulus to ensure their mandate of stable prices with 2% inflation as well as full-employment are both met.
Written by Viv Savani. 8:29am, July 11th 2019
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