· The U.S. dollar firmed against the euro on Tuesday but held in its tight recent range before the European Central Bank on Thursday is expected to cut interest rates deeper into negative territory and possibly restart asset purchases.
Investors are weighing whether further monetary stimulus will be effective in countering economic weakness in the euro zone, and whether the ECB will disappoint dovish expectations baked into the market. People are waiting on the ECB, thats really the big event this week, said Erik Nelson, a currency strategist at Wells Fargo in New York. But, given some of the pushback weve seen from the hawks on the board, we could easily see a disappointing outcome.
ECB policymakers are leaning toward a stimulus package that includes a rate cut, a beefed-up pledge to keep rates low for longer and compensation for banks over the side effects of negative rates, five sources familiar with the discussion said last week. Many also favor restarting asset buys, but opposition from some northern European countries is complicating this issue.
The dollar was last up 0.04% against the single currency at $1.1041. It has traded in a tight range between $1.1014 and $1.1084 for four days.
The euro got a temporary boost on Monday on a Reuters report that Germany is considering the creation of a “shadow budget” that would enable Berlin to boost public investment beyond the restrictions of constitutionally enshrined debt rules.
Germany can counter a possible economic crisis by injecting “many, many billions of euros” into the economy, Finance Minister Olaf Scholz said on Tuesday, signaling his readiness for a big stimulus package if the economy tips into recession.
The Japanese yen weakened to its lowest level against the greenback since Aug. 2 after Reuters reported that Bank of Japan policymakers are more open to discussing the possibility of expanding stimulus at their board meeting on Sept. 18-19 as the fallout from the U.S.-China trade war spreads.
Demand for the safe-haven currency has also dropped since China and the United States on Thursday agreed to hold high-level talks in early October, boosting risk sentiment.
In the United States, consumer price inflation data on Thursday and retail sales data on Friday are the main economic focus. They will follow a jobs report on Friday that showed U.S. jobs growth slowed more than expected in August. The Federal Reserve is expected to cut rates when it meets on Sept. 17-18.
· The Chinese yuan is set to weaken further against the dollar as trade tensions between the United States and China continue, according to CLSA Chief Economist Eric Fishwick.
Fishwick predicts the yuan will reach around 7.3 per dollar by the end of the year. On Tuesday morning, the yuan traded around 7.1144 against the U.S. currency on the Chinese mainland.
“Looking at how the currency trades, it is very clearly demonstrated that it is being used as a way to offset the effects of tariffs,” Fishwick told CNBC’s “Street Signs” on Monday. “So, the yuan is allowed to weaken whenever the U.S. ratchets the tensions higher.”
· China producer prices fell last month at their sharpest pace in three years, hit by Beijing’s trade war with Washington.
China is expected to buy more agricultural products to position itself for a better trade deal, according to a report from the South China Morning Post.
• U.S. President Donald Trump has fired national security adviser John Bolton amid disagreements over how to handle foreign policy challenges such as North Korea, Iran, Afghanistan and Russia.
Two sources familiar with the matter said one thing that bothered Trump was the possibility that Bolton let it be known that Vice President Mike Pence shared his opposition to Trump’s effort to bring Taliban leaders to the presidential retreat of Camp David, Maryland, to try to reach a peace deal.
The implication was that Bolton was trying to ally himself with Pence and send Trump a message that even the vice president disagreed with him, which irked the president, the sources said.
Trump scrapped the Camp David talks over the weekend after an American soldier was killed by a suicide bomber in the capital Kabul last week.
Bolton believed the United States could withdraw 5,000 of the nearly 14,000 American troops in Afghanistan and still maintain an effective counter-terrorism force there, without having to cut a deal with the enemy, sources said.
· Oil futures fell on Tuesday, losing early gains, after President Donald Trump announced that he fired national security advisor John Bolton.
U.S. West Texas Intermediate (WTI) futures settled 45 cents lower, or 0.8%, at $57.40 a barrel. Brent futures dropped 34 cents, or 0.5%, to $62.25 a barrel.
Trump said Tuesday he fired national security advisor John Bolton, saying on Twitter he had “disagreed strongly with many of his suggestions.”
“I informed John Bolton last night that his services are no longer needed at the White House. I disagreed strongly with many of his suggestions, as did others in the Administration, and therefore I asked John for his resignation, which was given to me this morning,” Trump said in a tweet.
While Bolton’s exit stunned Washington, it also weighed on markets as his removal “dials back fears of an attack on Iran,” John Kilduff of Again Capital told CNBC.
• The exit of National Security Advisor John Bolton from the White House makes it less likely the situation between the U.S. and Iran will escalate to a military conflict, analysts said.
Oil prices traded lower after President Donald Trump tweeted Tuesday that he asked Bolton to resign. Seen as the most hawkish member of the president’s cabinet, Bolton told NBC News that he was resigning on his own volition and that Trump had not asked him to leave. The White House said there were several reasons for Bolton’s departure and said it was not due to the recent leaks about disagreement within the administration about a failed idea to hold talks with the Taliban at Camp David.
• Among those unlikely to be mourning John Bolton’s departure as U.S. President Donald Trump’s national security adviser are officials in North Korea who have denounced him as a “war maniac” and “human scum” for his attempts to end Pyongyang’s nuclear program.
Policy analysts say Bolton’s departure could help U.S. efforts to revive the talks but will not make Washington’s aim of persuading Pyongyang to give up its nuclear weapons any easier.
• The exit of National Security Advisor John Bolton from the White House makes it less likely the situation between the U.S. and Iran will escalate to a military conflict, analysts said.
Oil prices traded lower after President Donald Trump tweeted Tuesday that he asked Bolton to resign. Seen as the most hawkish member of the president’s cabinet, Bolton told NBC News that he was resigning on his own volition and that Trump had not asked him to leave. The White House said there were several reasons for Bolton’s departure and said it was not due to the recent leaks about disagreement within the administration about a failed idea to hold talks with the Taliban at Camp David.
• Among those unlikely to be mourning John Bolton’s departure as U.S. President Donald Trump’s national security adviser are officials in North Korea who have denounced him as a “war maniac” and “human scum” for his attempts to end Pyongyang’s nuclear program.
Policy analysts say Bolton’s departure could help U.S. efforts to revive the talks but will not make Washington’s aim of persuading Pyongyang to give up its nuclear weapons any easier.
Reference: CNBC, Reuters
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