· The euro fell to a two-month low against the dollar on Wednesday, hit by weak economic data and speculation that the European Central Bank may open the door to aggressive monetary policy easing as soon as this week.
Money markets are pricing in a 54% chance of a 10 basis point cut on Thursday’s ECB meeting.
The probability rose after the eurozone purchasing managers’ index unexpectedly fell to a three-month low of 51.5 in July from 52.2 in June. Economists polled by Reuters had expected a slight decline to 52.1.
The ECB could also signal further reductions down the road or a fresh round of quantitative easing (QE), investors said.
“Disappointing PMIs out of the euro area will only increase expectations further for (Mario) Draghi to deliver a dovish sounding message tomorrow,” said Mohammed Kazmi, a portfolio manager at UBP.
“He will be expected to strongly hint at both rate cuts and QE ahead of easing that is anticipated for September.”
The common currency was down 0.1% at $1.1137 after earlier hitting $1.1127, its lowest since May 30. The euro hit a two-year low of $1.1105 in May.
The U.S. dollar firmed after Washington reached a deal to lift government borrowing limits, which analysts said could limit the U.S. Federal Reserve’s appetite for rate cuts.
The dollar was flat against a basket of currencies at 97.65, having edged up to a five-week high of 97.76 earlier following gains of nearly 0.5% the previous day.
The pound rose slightly from recent lows after Boris Johnson on Tuesday won the contest to be Britain’s next prime minister, focusing investor attention on the prospect of a no-deal Brexit.
Sterling was last up 0.44% at $1.2491, not far from the 27-month low of $1.2382 it hit last week.
· Boris Johnson promised in his first speech as prime minister to lead Britain out of the European Union on Oct. 31 with “no ifs or buts” and warned that if the bloc refused to negotiate then there would be a no-deal Brexit.
· With global growth slowing, the world’s central banks are in a race to cut interest rates to boost their economies, and the European Central Bank is expected Thursday to weigh lowering its already-negative interest rate.
The ECB could act, but strategists and economists say it’s much more likely the central bank will set the stage for an interest rate cut and other easing at its September meeting. The ECB meets ahead of the Fed’s much-anticipated vote next week, when it is expected to cut rates and begin a new cycle of interest rate reductions.
· A quarter-point Federal Reserve interest rate cut in July is almost a done deal, according to economists in a Reuters poll, who expect another later in the year amid rising economic risks from the ongoing U.S.-China trade war.
While that lines up with most major central banks, which have turned dovish in recent months, the latest poll shows economists, like financial markets, have settled on a 25 basis point cut in the federal funds rate to 2.00-2.25% rather than a half-point reduction.
Over 95% of 111 economists now predict a 25 basis point cut at the July 30-31 meeting. Only two economists polled expected a 50 basis point reduction and a further two said the Fed would hold steady.
· Top U.S. and Chinese negotiators will meet face-to-face next week for the first time since Presidents Donald Trump and Xi Jinping agreed to revive talks to end their year-long trade war.
The governments of the world’s largest economies have levied billions of dollars of tariffs on each other’s imports, disrupted global supply chains and shaken financial markets in their dispute over how China does business with the rest of the world.
U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer will meet with Chinese Vice Premier Liu He for talks in Shanghai starting on July 30, the White House said in a statement on Wednesday.
· China warned on Wednesday it was ready for war if there was any move toward Taiwan’s independence, accusing the United States of undermining global stability and denouncing its arms sales to the self-ruled island.
This month, the United States approved sales of weapons requested by Taiwan, including tanks and Stinger missiles, estimated to be worth $2.2 billion.
China responded by saying it would impose sanctions on U.S. firms involved in any deals.
Defence Ministry spokesman Wu Qian told a news briefing on a defense white paper, the first like it in several years to outline the military’s strategic concerns, that China would make its greatest effort for peaceful reunification with Taiwan.
· North Korea fired two short-range missiles early on Thursday from its eastern coast, South Korea’s military said, the first missile test since leader Kim Jong Un and U.S. President Donald Trump agreed to revive stalled denuclearization talks.
The firing of ballistic missiles would cast new doubts on efforts to restart denuclearization talks after Trump and Kim met at the demilitarized zone (DMZ) at the end of June.
The White House, Pentagon and U.S. State Department did not immediately respond to requests for comment.
A senior U.S. administration official said: “We are aware of reports of a short-range projectile launched from North Korea. We have no further comment.”
Japanese Defence Minister Takeshi Iwaya said North Korea’s launch of a pair of projectiles on Thursday was “very regrettable”, Jiji news agency reported.
A Japanese government source told Kyodo news the projectiles were ballistic missiles which did not reach Japan’s exclusive economic zone and had no impact on Japan’s national security.
· Oil prices fell 1% on Wednesday, failing to draw lasting support from a large decrease in U.S. crude stockpiles as investors worried about global oil demand.
Brent crude LCOc1 futures dropped 65 cents, or 1%, to settle at $63.18 a barrel, while U.S. West Texas Intermediate (WTI) crude CLc1 futures fell 89 cents, or 1.6%, to settle at $55.88 a barrel.
Reference: CNBC, Reuters
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