· The euro dipped below $1.12 to a three-week low against a stronger dollar on Tuesday as investors re-assessed their expectations of how much the Federal Reserve may cut interest rates by this month.
The nomination of IMF Chairwoman Christine Lagarde as the new head of the European Central Bank added to market participants’ worries that the ECB would be inclined to ease monetary policy faster than its U.S. counterpart.
The common currency fell to its lowest since mid-June at $1.1193.
In late U.S. trading, the index that tracks the greenback against six other major currencies .DXY was up 0.09% at 97.471 after touching 97.588, which was the highest since June 19.
Expectations of a 50-basis-point cut by the Fed have fallen to 4.9% from 25% seen last week, according to the CME FedWatch Tool. Investors also think there is a higher chance the Fed will not cut rates at the September meeting.
Still, money markets are pricing in a 95% probability of a 25-basis-point rate cut at the central bank’s July 31 meeting, according to FedWatch. A week ago, they saw a 75% chance of a cut.
Fed chief Jerome Powell’s comments during two days of testimony to Congress beginning on Wednesday will be watched to determine whether traders will continue to reduce bets for deep interest rate cuts.
Elsewhere, the British pound dropped to a new six-month low of $1.2457, with Brexit jitters and growing expectations of a BoE rate cut adding to sterling’s weakness. Excluding January’s “flash crash,” the currency is close to lows last seen in April 2017.
· Federal Reserve Chair Jerome Powell’s job is safe — at least for the moment.
The Trump administration is making “no effort” to remove the central bank chief, top White House economic advisor Larry Kudlow said on Tuesday.
“I will say that unequivocally, at the present time, yes, he is safe,” the National Economic Council director said at CNBC’s Capital Exchange event.
· Top U.S. trade officials spoke with their Chinese counterparts Tuesday as Washington and Beijing work to iron out a trade deal.
U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke to Chinese Vice Premier Liu He and Commerce Minister Zhong Shan “to continue negotiations aimed at resolving the outstanding trade disputes” between the world’s two largest economies, according to a U.S. official. The official said “both sides will continue these talks as appropriate.”
Earlier Tuesday, the White House’s top economic advisor, Larry Kudlow, said the Trump administration considers it “very, very important” for Beijing to buy agricultural products while the talks are ongoing.
· The U.S. government will issue licenses to companies seeking to sell goods to China’s Huawei where there is no threat to national security, Commerce Secretary Wilbur Ross said on Tuesday, leaving industry observers unsure about which products will pass muster.
· China has asked the U.S. to cancel any planned arms sale to Taiwan, accusing Washington of interfering in domestic Chinese affairs.
On Monday, the Pentagon announced to Congress it is likely to make a major sale of arms to the East Asian state when it outlined a$2.2 billion deal to provide tanks, anti-aircraft missiles and related equipment.
China’s foreign ministry spokesman Geng Shuang told reporters Tuesday that the sale of weapons “seriously violates the one-China principle,” and “grossly interferes in China’s internal affairs and undermines China’s sovereignty and security interests.”
In a statement on its English-language website, the Taiwan Presidential Office expressed “sincere thanks” to the United States for helping the island strengthen its defense.
U.S. President Donald Trump’s administration on Tuesday threatened he would veto a massive defense bill being considered by the House of Representatives, saying it provides less money than he wants for the military and disagreeing with some of its policy provisions.
· President Donald Trump said Tuesday the U.S. needs to stand up to India on the trade front.
In a tweet, Trump said: “India has long had a field day putting Tariffs on American products. No longer acceptable!”
· The iShares MSCI India ETF (INDA) ETF fell more than 1% in the premarket after the tweet was sent. It later recovered to trade along the flatline, however.
Earlier this year, the Trump administration stripped India of a preferential status that exempted billions of dollars worth of products made there from U.S. levies. “I have determined that India has not assured the United States that India will provide equitable and reasonable access to its markets,” Trump said in a proclamation.
India has tariffs on U.S. products such as Harley-Davidson motorcycles and U.S.-grown apples, among others. In June, Trump said India’s 50% levy on Harley-Davidson bikes was “unacceptable.”
· Oil futures edged up on Tuesday as OPEC supply cuts and Middle East tensions kept global benchmark Brent crude above $64 a barrel, while gains were limited by the U.S.-China trade dispute that has dragged on the global economy and crimped oil demand.
OPEC and allied producers led by Russia agreed last week to extend their supply-cutting deal until March 2020. Brent has risen almost20% in 2019, supported by the pact and tensions in the Middle East, especially the row over Iran’s nuclear program.
Brent crude, the global benchmark, rose 16 cents to $64.27 a barrel. U.S. West Texas Intermediate crude was up 5 cents to $57.71.
Reference: Reuters, CNBC
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