· The U.S. dollar was mixed on Thursday morning, weaker against the euro, the Swiss franc and the Japanese yen, but stronger versus the Antipodean currencies after a slew of central bank decisions came in more hawkish than expected.
The Federal Reserve on Wednesday cut interest rates by 25 basis points to provide insurance against risks including weak global growth and resurgent trade tensions, while signaling a higher bar to further reductions in borrowing costs.
Subsequently, the Swiss National Bank, the Bank of England and the Bank of Japan all kept their policies on hold. Norges Bank increased its key policy rate, moving its rates in the opposite direction of the United States and European Union.
The dollar dipped, 0.18% lower against a basket of currencies, despite Fed Chair Jerome Powell’s statement that “what we think we are facing here is a situation which can be addressed, which should be addressed, with moderate adjustments to the federal funds rate.” Powell noted that the U.S. labor market was strong and inflation was likely to return to the Fed’s 2% annual goal.
Against the dollar, the euro was 0.13% stronger, last at $1.1043.
Elsewhere, the Japanese yen maintained earlier gains after the Bank of Japan kept interest rates on hold, last up 0.37% against the dollar. The BOJ also signaled the chance of expanding stimulus as early as its next policy meeting in October by issuing a stronger warning over the risks threatening the economy.
The central banks are generally “kind of holding their breath and holding their fire in terms of fully acknowledging that further easing could come down the road but not moving in a proactive way towards additional easing,” said Daingerfield.
· The British pound jumped on Thursday after European Commission President Jean-Claude Juncker said he is confident a Brexit deal will get passed before the deadline.
The pound rose 0.68% to 1.2553 against the dollar.
· The Bank of England (BOE) held interest rates steady on Thursday, as Brexit uncertainty continues to hang over the world’s fifth-largest economy.
With less than 45 days to go before the U.K. is set to leave the European Union, the BOE’s nine-member Monetary Policy Committee (MPC), led by Mark Carney, unanimously voted to hold interest rates at 0.75%.
Policymakers at the BOE reiterated their view that leaving the EU without a deal would slow growth and raise prices.
But, the central bank also warned that another delay to Britain’s departure date could lead to further economic weakness.
· The U.S. House of Representatives approved a stopgap government funding bill on Thursday that would avoid a government shutdown by maintaining current spending levels through Nov. 21.
By a 301-123 vote, lawmakers sent the measure, known as a continuing resolution, on to the Senate. To take effect, it must be approved by both chambers of Congress and signed into law by President Donald Trump.
· The trade war between the United States and China has plunged global growth to its lowest levels in a decade, the OECD said on Thursday as it slashed its forecasts.
The Organization for Economic Cooperation and Development said that the global economy risked entering a new, lasting low-growth phase if governments continued to dither over how to respond.
The global economy will see its weakest growth since the 2008-2009 financial crisis this year, slowing from 3.6% last year to 2.9% this year before a predicted 3.0% in 2020, the OECD said.
· Trade negotiators from the U.S. and China resumed face-to-face talks in Washington, as the Trump administration said a Chinese delegation will visit American farmlands next week.
· Talks between a Chinese delegation led by Liao Min, a vice minister for finance, and Deputy U.S. Trade Representative Jeffrey Gerrish began Thursday and are scheduled to continue Friday.
· The negotiations are expected to lay the ground-work for top-level negotiations between U.S. Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin and Vice Premier Liu He in October in Washington. An exact date for that meeting hasn’t been released.
Commerce Secretary Wilbur Ross on Thursday reiterated the Trump administration is pressing for a deal that commits Beijing to a wide range of deep economic reforms.
“What we need is to correct the big imbalances, not just the current trade deficit, but also the structural imbalances, the impediments to market access, disrespect for intellectual property, forced technology transfers,” Ross said in an interview with Fox Business Network’s Maria Bartiromo. “So it’s more complicated than just buying a few more soybeans.”
· The United States is set to ramp up the pressure on China if a trade deal is not agreed soon, a key White House adviser said, adding that Washington has so far imposed only “low level tariffs” on the Asian giant.
Described by US President Donald Trump as “the leading authority on China”, Michael Pillsbury said in an interview in Hong Kong on Thursday that Trump had been “remarkably restrained in the pressure he has brought to bear on China in the trade field”.
· Brent crude oil prices rose more than 1% on Thursday on fears of longer-than-expected supply shortfalls following Saturday’s attacks on a key Saudi Arabian oil processing facility and escalating tensions in the Middle East.
Global benchmark Brent LCOc1 settled 80 cents, or 1.3%, higher at $64.40 a barrel, while U.S. West Texas Intermediate (WTI) crude CLc1 pared earlier gains and ended largely steady at $58.13 a barrel, just 2 cents firmer.
“The Saudi oil industry could be threatened again and we could see more supply disruption from the Persian Gulf,” said Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut.
“What’s hanging over the market’s head is the response that may be coming. How will the U.S. and Saudi Arabia respond to this?” he said.
Reference: CNBC, Reuters, Bloomberg, South China Morning Post
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