· The dollar weakened on Thursday as investors braced for a possible announcement or statement from the Federal Reserve at this week’s Jackson Hole, Wyoming event that would help address the worsening global economic outlook.
Market participants expect the Fed announcement could be a stimulus measure, or an affirmation that the U.S. central bank is on a steady path to ease interest rates, a scenario viewed as negative for the dollar.
Fed Chairman Jerome Powell will speak on Friday and expectations are building that he will clarify Fed minutes released on Wednesday and deliver a dovish speech that would soothe market worries about the prospect of recession.
The Fed’s latest minutes confirmed a growing view that U.S. policymakers are reluctant to begin a big rate-cutting cycle in the coming months, describing the July easing as a mid-cycle adjustment. The minutes showed policymakers were divided over whether to cut interest rates but united in wanting to signal they were set on more cuts.
The dollar slipped 0.14% against a basket of major currencies to 98.15. The greenback also fell against the yen as well, down 0.2% at 106.37 yen, not far from last week’s eight-month low around 105.05.
The euro was flat at $1.1097, amid an uptick in euro zone business growth. Euro zone business growth picked up in August, as services expanded and manufacturing contracted at a slower pace. But trade war fears knocked future expectations to their weakest in over six years, a survey showed.
Investors also sold Asian currencies after the Chinese yuan fell to an 11-year low against the dollar, indicating trade tension between the world’s two biggest economies remained a major issue.
In onshore trading, the yuan fell to 7.0752 per dollar, its weakest since March 2008, before recovering to 7.0732. In offshore trade, the dollar rose 0.29% to 7.0872 yuan.
· The main part of the yield curve inverted once again Thursday as the yield on the benchmark 10-year Treasury note traded under that of the 2-year note, the third time the recession indicator has been triggered since last Wednesday.
The move came after Kansas City Federal Reserve President Esther George and Philadelphia Fed President Patrick Harker told CNBC that they don’t see the case for additional interest rate cuts after the central’s bank quarter-point reduction in July.
The initial inversion on Thursday followed in the immediate aftermath of George’s comments, though the spread between the two yield bounced into and out of negative territory throughout the rest of the trading session. As of 4:05 p.m. ET the curve was inverted with the 2-year Treasury yield at 1.614%, above the 10-year at 1.611%.
Portions of the U.S. yield curve have inverted over the past several months, but economists consider a negative spread between the 2-year rate and 10-year rate more concerning. That’s because inversions of that part of the curve have predated every recession over the past 50 years while the last five 2-10 inversions have all led to recessions.
· Kansas City Federal Reserve President Esther George disagrees with the U.S. central bank’s move to cut interest rates last month, saying the economy is still strong.
· Fed Chairman Jerome Powell faces the tough challenge of presenting a unified voice on Fed policy from the most divided Fed in years, and that could create volatility if he doesn’t assure markets the Fed will continue to cut interest rates.
Powell will speak at the Fed’s annual Jackson Hole symposium at 10 a.m. ET Friday to an audience of central bankers and economists. His speech comes as the Fed and Powell are under unprecedented siege from an angry president and are also losing the confidence of fearful markets.
· China is still short on details on how it will respond to new U.S. tariffs on Chinese goods.
“If the U.S. obstinately clings to its own way, China has no choice but to take corresponding countermeasures,” Ministry of Commerce Spokesman Gao Feng said Thursday in Mandarin, according to a CNBC translation. “The U.S. should change its wrong actions.”
He did not elaborate on what those measures might entail, but emphasized the need for fairness in trade negotiations.
· The Group of Seven (G-7) summit is set to end without a joint communique for the first time in its 44-year history, after French President Emmanuel Macron decided to abandon the tradition citing “a very deep crisis of democracy.”
Speaking to reporters ahead of the G-7 meeting at a news conference in Paris on Wednesday, Macron said an attempt to produce a joint communique would most likely be a “pointless” exercise.
He referenced President Donald Trump’s decision to withdraw from a landmark climate agreement restricting global efforts to cut carbon as one example of why it would be difficult to display a united front.
· China appears to be stepping up to mediate between Japan and South Korea as their trade battle intensifies — a move that could prompt the U.S. to get more involved in the region, one expert says.
Foreign ministers from the three Asian countries are in China for three days to discuss trade and cooperation. It comes amid an escalating trade fight between Japan and South Korea which started in July, when Tokyo placed trade restrictions on three chemical materials widely used by South Korean companies that make semiconductors.
Now that China is mediating, the U.S. will likely get involved too, since Seoul and Tokyo have always been Washington’s allies, said political analyst Paul Triolo.
“The Trump administration will not want to leave the mediation to China, but will focus on trying to calm the rhetoric around the dispute and urge caution in Tokyo in terms of the export control issue creating any serious disruptions to supply chains around semiconductors,” Triolo told CNBC in an email.
· Oil prices weakened on Thursday as worries about the global economy weighed and equity markets were under pressure as uncertainty over the outlook for U.S. interest rate cuts left investors on edge.
U.S. West Texas Intermediate crude shed 33 cents to $55.35 per barrel while Brent crude lost 39 cents to $59.91.
Traders are awaiting a speech from Federal Reserve Chair Jerome Powell on Friday in Jackson Hole, Wyoming, that could indicate whether the U.S. central bank will continue to cut interest rates.
Reference: CNBC, Reuters
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