· The dollar struggled near seven-week lows on Wednesday after U.S. central bank officials hinted at the possibility of an interest rate cut in the face of rising risks to trade and global growth.
The dollar index against a basket of six peers was last flat at 97.077, within reach of a recent low of 96.995 brushed overnight - its lowest since April 18. It has now fallen 1.3% from a more than two-year high of 98.371 touched on May 23.
The dollar struggled near seven-week lows on Wednesday after U.S. central bank officials hinted at the possibility of an interest rate cut in the face of rising risks to trade and global growth.
Federal Reserve Chairman Jerome Powell dropped his standard reference to the Fed being “patient” in approaching any rate decision on Tuesday, saying instead the central bank will respond as “as appropriate” to trade pressure.
· Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said major currencies barely reacted to Powell’s comments as investors had already priced in several rate cuts by the Fed on the back of the shifting global growth outlook.
The Fed chairman’s comments came a day after St. Louis Federal Reserve President James Bullard said in a speech that a rate cut may be needed “soon.”
Rate cuts by some central banks in recent weeks could potentially signal the start of a global monetary easing cycle to stave off a sharper economic downturn.
“Central banks across the globe are adopting a dovish tone. It’s kind of a preemptive move,” said Yamamoto.
“It doesn’t necessarily mean that the economy is worsening - rather the outlook worsened. It’s mainly related to the trade tensions between the U.S. and China and the U.S. and Mexico.”
· The euro was up 0.1% at $1.1260, extending its gains to a fourth session.
· Short-term U.S. government debt yields slumped on Wednesday after a gauge of private employment showed a sharp contraction in job creation in the month of May.
While the yield on the benchmark 10-year Treasury note hover at flatline around 2.12%, the yield on the 2-year Treasury note shed 5 basis points to trade at 1.839%. Bond yields move inversely to prices.
Companies added just 27,000 new positions during the month of May, according to payroll processing firm ADP and Moody’s Analytics. The Wednesday report fell well below Dow Jones estimates of 173,000.
The reading represented the worst print since the beginning of the economic expansion in March 2010 with a loss of 113,000. Though just one of many datapoints tracked by the Federal Reserve and U.S. economists, the weak jobs data marks a pivot in what’s been one of the brightest spots of the economy in recent years.
· The U.S. and Mexico failed to reach a deal on immigration issues during their Wednesday meeting.
Officials met just days before 5% tariffs on all Mexican imports are set to kick in, while President Donald Trump was in the U.K. on a state visit. Trump announced the tariffs in a surprise tweet last Thursday, saying they would be imposed “until such time as illegal migrants coming through Mexico, and into our Country, STOP.”
On Wednesday evening, Trump tweeted that “progress is being made, but not nearly enough!” The president said talks will continue on Thursday and that if no deal is reached then tariffs will begin on Monday.
· Heightened trade tensions with the U.S. are beginning to hit China’s growth.
The International Monetary Fund (IMF) lowered its 2019 growth forecast for the world’s second-largest economy to 6.2% from 6.3% on Wednesday, after the conclusion of the organization’s visit to China over roughly the last two weeks.
U.S.-China tariffs, that have been both implemented and proposed, could cut global economic output by 0.5% in 2020, the International Monetary Fund (IMF) warned Wednesday.
· Christine Lagarde, the IMF’s managing director, said in a briefing note for G-20 finance ministers and central bank governors that taxing all trade between the world’s two largest economies would cause some $455 billion in gross domestic product to evaporate. This would be a loss larger than South Africa’s economy, it said.
“There are growing concerns over the impact of the current trade tensions. The risk is that the most recent U.S.-China tariffs could further reduce investment, productivity, and growth. The just proposed U.S. tariffs on Mexico are also of concern,” Lagarde said in the blogpost.
The International Monetary Fund has identified Italy’s debt as a major risk to the euro zone economy, together with global trade tensions and a hard Brexit, an EU source told Reuters on Wednesday, anticipating a report the IMF will present next week.
· The United States is pursuing the sale of more than $2 billion worth of tanks and weapons to Taiwan, four people familiar with the negotiations said, in a move likely to anger China as a trade war between the world’s two biggest economies escalates.
For many years, Taiwan has been interested in refreshing its existing U.S.-made battle tank inventory which includes M60 Patton tanks.
· Oil prices plunged on Wednesday, with futures falling to their lowest since January, after the U.S. government reported an unexpected surge in the nation’s crude stockpiles.
U.S. commercial crude inventories jumped by 6.8 million barrels in the week through May 31, the U.S. Energy Information Administration reported. Stockpiles jumped despite refineries increasing activity and as U.S. crude imports jumped by more than 1 million barrels per day.
That trumped an earlier reading from the American Petroleum Institute that suggested stockpiles rose by 3.5 million barrels in the week. Analysts’ had expected stocks to drop by 849,000 barrels, according to a Reuters poll.
U.S. West Texas Intermediate crude fell to a session low of $50.66 after the report, the lowest level since Jan. 15. WTI settled $1.80 lower at $51.68 a barrel, falling 3.4% to its weakest closing price in nearly five months.
Brent futures sank as low as $59.45, also its lowest since mid-January. Brent was down $1.31, or 2.1%, at $60.66 a barrel around 2:25 p.m. ET (1825 GMT).
Reference: CNBC, Reuters
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