· The dollar rose to a two-year peak against the euro and jumped to a two-month high versus the yen on Thursday as U.S. Federal Reserve Chairman Jerome Powell ruled out a lengthy easing cycle after delivering the first rate cut since the financial crisis.
Traders still see one more rate cut this year. Powell’s remarks, however, slashed expectations the Fed is prepared to lower rates well into next year.
· “The comments by Powell were not particularly dovish, so this is confirmation that this is a small insurance cut,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
“This outcome limits the dollar’s downside from here. Rate cuts will be on the small side, but this still strengthens the case for a prolonged U.S. economic expansion, which is positive for the dollar long term.”
· The euro fell to fell to $1.1034, the lowest since May 16, 2017, before paring losses to trade down 0.2% at $1.1045.
Against the yen the dollar broke through an important resistance level at 109.00 yen to reach a two-month high of 109.35 yen.
The dollar index against a basket of six major currencies rose 0.3% to a two-year high of 98.932.
· The American Dollar is gaining ground in Asia as the US Federal Reserve (Fed) cut interest rates by 25 basis points as expected in the overnight trade but dented expectations of further easing. USD/JPY is trading at the highest level since May 31.
The USD/JPY pair holds near its daily highs, although it still needs to break above 109.00 and trigger stops suspected beyond it to resume its advance. The 4 hours chart shows that the pair surpassed its previous July’s high by just one pip, also that the pair has recovered above its 20 SMA, which remains flats. Technical indicators have resumed their advances, with the RSI currently advancing at around 62 but the Momentum still within neutral levels, failing to confirm another leg south.
Support levels: 108.40 108.00 107.65
Resistance levels: 109.00 109.35 109.80
· Robin Brooks, managing director and chief economist of IIF, suggested that the central bank may not be done with cutting rates.
“I think the midcycle adjustment language that Chairman Powell used is important, ” Brooks pointed out. “The midcycle adjustments that we saw in ’95 and ’98 were 75 basis points each — so three cuts each. And I think that is actually pretty close to what the market was pricing going into this meeting.”
So, the central bank’s move and Powell’s comments on Wednesday aren’t “much of a hawkish surprise at all,” Brooks told CNBC’s “Squawk Box” on Thursday.
“My basic point here is: I think markets here need to chill a little bit and the underlying theme is more dovish than ... markets perceived.”
· China’s central bank kept its main policy rates on hold on Thursday, opting not to follow an overnight benchmark rate cut by the U.S. Federal Reserve as policymakers wait to see if earlier support measures start to stabilize the economy.
But market watchers say continued support is still needed, and expect more modest forms of policy easing from the People’s Bank of China (PBOC) in coming months if pressure on the economy persists.
· Britain is ramping up preparations for a no-deal Brexit by spending an extra 2.1 billion pounds to make sure the country is ready to leave the European Union with or without a divorce deal at the end of October.
In his first major policy announcement, new finance minister Sajid Javid said the extra money will fund a nationwide advertising campaign, ensure the supply of vital medicines, help Britons living abroad, and improve infrastructure around ports.
· U.S. national security adviser John Bolton said on Wednesday North Korea’s recent missile tests did not violate a pledge its leader Kim Jong Un made to President Donald Trump, but Pyongyang had yet to say when working-level talks on denuclearization would resume.
North Korea’s tests of short-range missiles on Tuesday and last week came despite a meeting between Kim and Trump on June 30 at which they agreed to revive stalled talks.
· The United States does not plan to make changes to a military drill with South Korea, a senior U.S. defense official said on Wednesday, despite a series of North Korean missile launches intended to pressure Seoul and Washington to stop joint exercises.
The U.S. and South Korean militaries are planning to stage a joint exercise in August, known as Dong Maeng, which is believed to be a slimmed down version of an annual drill once known as Ulchi Freedom Guardian exercise, which included thousands of U.S. troops.
· The U.S. ambassador to Germany launched a scathing attack on Chancellor Angela Merkel’s government on Thursday for its reluctance to join a naval mission in the Strait of Hormuz, saying Europe’s biggest economy must assume more global responsibility.
On Wednesday, German Foreign Minister Heiko Maas ruled out German participation in a planned U.S.-led naval mission to the Strait of Hormuz, close to Iran, after the U.S. said it had made a formal request. He said Germany wanted to ease tensions with Iran and everything should be done to avoid an escalation.
· The United States on Wednesday imposed sanctions on Iranian Foreign Minister Mohammad Javad Zarif, targeting the country’s top spokesman and potentially hurting chances of diplomatic talks amid rising tensions between the two countries.
The sanctions against Zarif would block any property or interests he has in the United States, but the Iranian foreign minister said he had none.
“The US’ reason for designating me is that I am Iran’s ‘primary spokesperson around the world’,” Zarif said on Twitter. “Is the truth really that painful? It has no effect on me or my family, as I have no property or interests outside of Iran. Thank you for considering me such a huge threat to your agenda.”
· Oil prices skidded on Thursday, declining for the first time in six days, after the U.S. Federal Reserve dampened hopes for a string of interest rate cuts and Sino-U.S. talks ended without apparent progress towards resolving a bitter trade dispute.
Brent crude futures, LCOc1 the international benchmark, fell 62 cents, or 1%, to $64.43 a barrel by 0405 GMT, having fallen more than $1 earlier in the session. U.S. West Texas Intermediate (WTI) CLc1 crude was down 67 cents, or 1.2%, at $57.91 a barrel, also having dropped more than a $1 earlier.
A Reuters monthly poll showed oil prices are expected to be range-bound near current levels this year as slowing economic growth and the protracted trade dispute between the U.S. and China curb demand.
Meanwhile, negotiators from the United States and China, the world’s two biggest economies, wrapped up a round of trade talks on Wednesday without visible signs of progress and put off their next meeting until September.
Reference: CNBC, Reuters, FXStreet
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