Market Drivers August 1, 2019
Dollar pushes higher
EU data remains weak
Nikkei 0.09% Dax -0.13%
UST 10Y 2.06%
Europe and Asia:
EUR PMI 46.5 vs. 46.4
GBP PMI 48.0 vs. 47.7
GBP BoE 7:00
USD ISM Man 10:00
The dollar rally continued in Asia and early European trade today as the single currency extended its gains against most majors after what analyst called the Fed’s “hawkish” cut.
Although the Fed cut rates by 25bp yesterday Chairman Powell characterized the move as a “mid-cycle adjustment” indicating that the long term monetary policy remained contractionary as the Fed continues on its quest to normalize rates.
Powell’s message was far from clear as he did not commit to any one course of action but perhaps by simply refusing to fully embrace the accommodative stance he provided enough guidance for the currency market with enough reason to push the buck higher.
Economic data overnight did not help matters as both EU and UK PMIs came in weak with EU Manufacturing printing at 46.5 while UK came in at 48.0. Both measures are below the 50 boom/bust line indicating that the manufacturing sector in the region is in a recession and the only positive takeaway from reports was that the decline appears to have stabilized for now.
In UK traders will also face the BoE rate decision at 11:00 GMT with the central bank likely to remain on hold as it watches anxiously the developments in the Brexit saga. With policymakers essentially at the whimsy of politicians there is little that Mr. Carney can do at the moment, but they will no doubt have to communicate an accommodative message despite the fact that UK is the only G-7 economy seeing price pressures. Cable has flirted with 1.2100 level earlier in the day, but should the central bank be dovish the rate could fall to the key 1.2000 level in the aftermath of the presser putting further pressure on UK economy.