· The U.S. dollar was little moved on Tuesday as traders held off making large bets before the Federal Reserve’s policy announcement on Wednesday.
The Federal Open Market Committee began its two-day meeting on Tuesday, and will issue a statement and economic projections at the close of Wednesday’s session. The committee is expected to leave its benchmark overnight policy rate unchanged at the current range between 2.25% and 2.5%. But slow employment growth in May, the ongoing trade war with China and weak inflation data have increased expectations for dovish remarks.
The dollar index was last up 0.08% at 97.640, its highest since June 3.
On Tuesday, China and the United States rekindled trade talks ahead of a meeting next week between Presidents Donald Trump and Xi Jinping, which cheered financial markets but did little to move rate cut expectations.
CME Group’s FedWatch tool puts the probability of a quarter-point interest rate cut on Wednesday at 24.2%, with a 64.7% probability of a cut at its next meeting in July.
· The dollar’s rise was in part spurred by a weaker euro , which fell after European Central Bank chief Mario Draghi said policymakers will provide more stimulus if inflation does not pick up. It was last down0.21% at $1.119, a two-week low.
· China and the United States are rekindling trade talks ahead of a meeting next week between Presidents Donald Trump and Xi Jinping, cheering financial markets with hope that an escalating trade war between the two countries would abate.
“Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting,” Trump said in a post on Twitter.
Trump praised his relationship with Xi and spoke optimistically about getting a deal.
Trump has threatened to put tariffs on another $325 billion of goods, covering nearly all of the remaining Chinese imports into the United States, including products such as cellphones, computers and clothing.
· President Donald Trump, asked if he still wants to demote Federal Reserve Chairman Jerome Powell, told reporters Tuesday, “Let’s see what he does.”
Trump’s remarks came a day before the Fed was set to announce its next decision on interest rates.
The president added that he wants a “level playing field” from the central bank.
Trump in recent days has pressured the Fed under Powell not to raise rates, claiming that comparatively lower interest rates for the euro give other countries an advantage over the U.S.
Bloomberg News reported Tuesday morning that the White House had looked into demoting Powell in February. Top White House economic advisor Larry Kudlow told reporters that the Trump administration was not currently considering such a move.
· Boris Johnson, the frontrunner to be Britain’s prime minister, repeated his pledge on Tuesday that he would take the United Kingdom out of the European Union by Oct. 31, saying otherwise the government would face a catastrophic loss in trust.
· Oil prices rose more than $1 a barrel on Tuesday after U.S. President Donald Trump said he would hold an extensive meeting with Chinese President Xi Jinping at the G20 summit later this month.
U.S. West Texas Intermediate crude futures rose $1.75, or 3.4%, to $53.68 a barrel. Brent crude futures rose $1.07, or 1.8%, to $62.01 a barrel.
“Right now, this is a rumor-driven market,” said Gene McGillian, vice president of market research at Tradition Energy. “There’s the expectation that if you are able to reach a trade resolution, it would help global economic growth and therefore oil demand.”
Market participants are also awaiting a meeting between the Organization of the Petroleum Exporting Countries and other producers including Russia, a group known as OPEC+, to decide whether to extend a supply reduction pact that ends this month.
Russian Energy Minister Alexander Novak said on Tuesday it was too early to make any decisions about the future of the agreement because of market uncertainties.
Reference: CNBC, Reuters
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