· The dollar softened against most major currencies on Wednesday in step with lower U.S. bond yields and expectations the Federal Reserve would lower interest rates, reversing some of the prior day’s gains tied to stronger-than-forecast retail sales data.
The pound fell to 27-month lows versus the greenback on jitters about a no-deal Brexit before rebounding in U.S. trading.
The greenback was also bogged down by uncertainties whether the White House would embark on efforts to weaken the dollar in the wake of comments from U.S. President Donald Trump who said on Twitter on July 3 the United States “should match” the “big currency manipulation game” by China and Europe.
Moreover, the International Monetary Fund on Wednesday said the greenback was overvalued by 6% to 12%, based on near-term economic fundamentals, while the euro, Japan’s yen and China’s yuan were seen as broadly in line with fundamentals.
The euro hit a one-week low against the dollar and towards the lower end of this year’s trading range, weighed down by expectations of easing from the European Central Bank and investors’ preference for the higher-yielding U.S. currency.
The euro fell to $1.1200 earlier Wednesday before clawing back up 0.10% on the day to $1.1223.
The dollar was 0.13% lower at 108.095 yen.
The pound fell to a fresh 27-month low of $1.2382 before rebounding to $1.2433. It also hit a fresh six-month low against the euro at 90.51 pence. [GBP/]
An index that tracks the dollar against the euro, yen, pound and three other currencies was down 0.20% at 97.204 after touching a one-week high.
· The Fed’s latest Beige Book on Wednesday showed the longest U.S. economic expansion remained intact amid risk from trade disputes.
The U.S. economy grew at a “modest” rate in recent weeks, with consumers continuing to spend and a “generally positive” outlook overall even in the face of disruptions caused by U.S. trade policy, the Federal Reserve reported on Wednesday.
Employment continued to expand and “labor markets remained tight, with contacts across the country experiencing difficulties filling open positions,” the Fed reported in its latest Beige Book compendium of anecdotes from businesses around the country. “The outlook generally was positive for the coming months, with expectations of continued modest growth, despite widespread concerns about the possible negative impact of trade-related uncertainty.”
· U.S. interest rates futures implied traders fully expect the Fed to cut rates at its upcoming policy meeting on July 30-31 with a 35% chance for a half-point decrease, CME Group’s FedWatch tool showed.
· China may have just signaled it’s going more hard-line on trade, but it could actually be a good thing, former top White House trade negotiator Clete Willems, told CNBC on Wednesday.
Beijing added a new member to its negotiating team last week: Commerce minister Zhong Shan, who’s seen by many officials in Washington as a hard-liner. It could be a sign that Chinese leader Xi Jinping is standing firm on trade, analysts say.
By adding Zhong to the negotiating team, it shows that Xi is trying to win over the hard-liners, said Willems, who left his role as deputy director of the National Economic Council (NEC) in March.
“China has now elevated its commerce minister Zhong Shan and made him a part of the core negotiating team along with (Vice Premier) Liu He. A lot of people are nervous — he’s seen as a hard-liner,” Willems told CNBC’s “Squawk Box.”
But he’s not overly concerned. “I actually think it’s a good thing because what it shows is that President Xi is trying to get buy-in from both the hard-line within China and the reformers, which is going to be necessary ingredients for a deal,” Willems said.
· Challenging conditions in the U.S. housing market, along with tighter currency controls by the Chinese government, caused a stunning drop in foreign demand for American homes.
The dollar volume of homes purchased by foreign buyers from April 2018 through March 2019 dropped 36% from the previous year, according to the National Association of Realtors. The decline was due to a drop in the number and average price of purchases. Foreigners bought 183,100 properties with a total value of about $77.9 billion, down from 266,800 valued at $121 billion in the previous period.
· The European Central Bank will cut its deposit rate in September after signaling a bias to do so this month, according to economists in a Reuters poll who do not expect a turnaround in the euro zone’s economic fortunes any time soon.
Major central banks on both sides of the Atlantic are under pressure to ease monetary policy to keep inflation expectations from collapsing amid slowing global growth, increased trade protectionism and weak economic data.
When asked what the ECB was likely to do at its July meeting, two-thirds of economists said the central bank would change its forward guidance toward easing.
With inflation well below the central bank’s target and not predicted to pick up soon, the ECB is expected to cut its deposit rate by 10 basis points to an all-time low of -0.50% in September.
· Christine Lagarde has said she will step down as managing director of the International Monetary Fund (IMF).
It comes ahead of a decision on her nomination to become head of the European Central Bank (ECB).
Ms Lagarde said she would leave the IMF on 12 September.
· Japanese manufacturers’ business confidence hit a three-year low in July, highlighting the fragility of the export-led economy as external demand slackens in the face of cooling global growth and trade friction, the Reuters Tankan showed.
In another worrisome sign, sentiment in the service sector improved this month but is forecast to tumble three months ahead.
· Japanese Finance Minister Taro Aso on Wednesday urged his G7 counterparts to make a comprehensive assessment of Facebook Inc’s Libra digital currency for any fresh challenges that could be overlooked by existing regulations.
“Applying existing regulations alone may not be enough. A comprehensive examination is needed to see if Libra poses new challenges that existing rules do not take into account,” Aso told reporters after the first day of a two-day G7 gathering that ends on Thursday.
Finance leaders of the Group of Seven top economies gathering in Chantilly, north of Paris, agreed on the need to highlight their concern on Libra, though there was no consensus on how to regulate it, said a senior Japanese finance ministry official who was present at the talks.
Aso said the G7 finance leaders also reconfirmed an assessment made by the bigger G20 gathering that the global economy remained on track for a recovery, despite strains from the simmering U.S.-China trade tensions.
“There was an agreement (among the G7 members) that the global economy will likely recover through next year,” Aso said.
· Leaders from countries in South America’s Mercosur trade bloc met on Wednesday in Argentina, with plans as to how to push forward a recently struck free-trade deal with the European Union at the center of discussions.
The deal - two decades in the making - marks a rare win for free trade amid rising global protectionism, although it still needs to be ratified, in principle, by the multiple national parliaments involved. Mercosur leaders indicated they were keen to find a way to speed up implementation of the deal.
The presidents of Argentina, Brazil, Paraguay and Uruguay appeared together in the city of Santa Fe, in Argentina’s Pampas grain belt, less than a month after agreeing to the landmark agreement with the EU.
· Oil futures fell more than 1% on Wednesday, extending a more than 3% drop in prices the previous session, after U.S. government data showed large builds in refined product stockpiles.
Brent crude futures were down 69 cents, or 1.1%, to settle at $63.66 a barrel. U.S West Texas Intermediate (WTI) crude futures fell 84 cents, or 1.5%, to settle at $56.78 a barrel. Both benchmarks shed more than 3% on Tuesday.
While data on Wednesday from the U.S. Energy Information Administration showed a larger-than-expected drawdown in crude stockpiles last week, large builds in refined product inventories kept prices lower.
U.S. crude inventories fell 3.1 million barrels, EIA data showed, more than analysts’ forecasts for a decrease of 2.7 million barrels.
· The U.S. House of Representatives backed resolutions on Wednesday to block the sale of precision-guided munitions to Saudi Arabia and the United Arab Emirates, sending them to the White House, where President Donald Trump has promised a veto.
The three resolutions would block the sale of Raytheon Co precision-guided munitions and related equipment to the two countries. The House’s Democratic leaders opted to take up those three before the others because the PGMs could be delivered quickly, aides said. Some lawmakers also suspect that the PGMs have been used against civilians in Yemen’s civil war
Reference: CNBC, Reuters, BBC
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