· Dollar wallows near 2-year low as coronavirus keeps Fed in a bind
The dollar languished near two-year lows on Wednesday as the United States struggled to contain a spike in coronavirus cases, dashing hopes for a quick economic recovery.
The dour outlook for the world’s largest economy is expected to see the U.S. Federal Reserve sticking to a dovish stance at its policy review later in the day, with dollar bears betting it could hint of other ways to loosen policy further down the road.
The dollar index against six major currencies stood at 93.720, near its lowest since June 2018 this week.
The euro traded at $1.1723, up slightly on the day though it has stepped back a tad from Monday’s 22-month high of $1.17815.
The dollar changed hands at 105.05 yen, near a 4-1/2-month low of 104.955 hit the previous session.
The British pound fetched $1.2931, having hit a 4-1/2-month high of $1.2952 on Tuesday.
Its weakness stemmed from an eroding perception that U.S. economic growth would be stronger than the rest of the developed world and that investors could count on higher returns in the dollar.
Four U.S. states in the south and west reported one-day records for coronavirus deaths on Tuesday and nationwide cases stayed high.
Investors will be watching for any indications that the U.S. central bank will increase its purchases of longer-dated debt, implement yield caps or target higher inflation than it has previously indicated when it concludes its two-day meeting on Wednesday.
· Fed faces viral wave, mounting risks to recovery
In a fast-changing global pandemic, this was not the turn U.S. Federal Reserve officials hoped for in early June, when their forecasts showed guarded optimism for a sharpish early economic rebound and steady slow growth to follow.
In the ensuing seven weeks, much has gone downhill.
The coronavirus pandemic has intensified and prompted new economic restrictions. Data has pointed to a possible slowdown in business and hiring. And so-far stalled talks in Washington about further government relief have pushed the country to the brink of a spending cliff.
The risks to the U.S. recovery, in short, have grown substantially, and the new Fed policy statement to be released Wednesday afternoon will show just how seriously U.S. central bankers assess them. On Tuesday the Fed already made one nod to the outlook, extending from Sept. 30 to Dec. 31 the availability of the emergency credit programs it set up early in the pandemic when hopes of a quick “V” shaped recovery were still strong
The policy statement will be released at 2 pm EDT (1800 GMT) and Fed chair Jerome Powell is scheduled to hold a press conference a half hour later. No new economic projections will be issued at this meeting.
Nor is the Fed expected to announce any major policy decisions on Wednesday. Officials may point to a pending shift this fall in how it views its inflation target, or begin setting explicit goals for the jobless rate or inflation to be met before it considers raising interest rates from the current near-zero level.
In addition recent data suggest the hoped-for rebound, which started with an unexpected round of hiring in May and June, may have plateaued - a motivation for the Fed’s extending its emergency programs at least through the end of the year.
The official jobless rate fell from 14.7% in April to 11.1% in June, for example, but a survey by the Dallas Federal Reserve since then, as well as a new employment forecast by the St. Louis Federal Reserve, both suggest employment dipped this month. Last week new claims for unemployment insurance rose for the first time since March.
· China's factories may lose momentum in July amid floods, soft global demand: Reuters poll
China’s factory activity probably grew for the fifth month in July, but at a slower pace, as floods disrupted manufacturing and a resurgence in coronavirus cases around the world threatens to undermine the gradual domestic recovery.
The official manufacturing Purchasing Manager’s Index (PMI) is expected to ease to 50.7 in July from June’s three-month high of 50.9, according to the median forecast of 29 economists polled by Reuters. A reading above 50 indicates an expansion in activity. The survey is due to be released on Friday.
· South Korea's July exports seen falling for fifth month on weak global demand: Reuters poll
South Korea’s exports likely contracted for a fifth straight month in July as global demand remained weak despite the easing of coronavirus-related lockdowns, a Reuters poll showed on Wednesday.
While the worst may be over now that more economies are re-opening, surging infections in the United States and other countries are likely to slow their recoveries and weigh on demand for months to come.
July exports were expected to contract 9.7% from a year earlier, according to the median forecast of 12 economists polled by Reuters. That was slightly milder than a 12.8% plunge in preliminary data for the first 20 days of the month and a 10.9% decline in June.
South Korea’s monthly trade data, the first to be released among major exporting economies, is considered a bellwether for global trade.
· Japan to release several growth forecasts for fiscal 2020, 2021 due to COVID-19: sources
Japan plans to release several scenarios for economic growth in fiscal 2020 and 2021 due to uncertainty over how long the coronavirus pandemic will last, four government sources with knowledge of the matter told Reuters on Wednesday.
The government will give projections for gross domestic product growth (GDP) based on two assumptions that the pandemic would either end quickly or be prolonged, an unusual move underscoring the unpredictability policymakers face from the health crisis.
GDP is expected to shrink this year under either scenario but it would be smaller than a 5% contraction.
Under its most pessimistic scenario for the fiscal year through March 2022, the government expects to see nearly flat, but still positive GDP growth, one of the sources said.
· U.S. refiners to post worst second-quarter results in a decade
U.S. oil refiners in coming days are expected to report the worst second-quarter results in a decade, with production outrunning demand while pandemic-related closings have sapped summer travel.
Fuel consumption has tumbled, with latest U.S. data showing a 25% drop on auto travel from a year earlier and a 75% decline in passengers at airports. Refiners get the bulk of their profits from domestic fuel sales, with the June quarter among the biggest for travel.
· Oil prices are little changed on demand concerns tied to COVID-19
Oil prices were mixed on Wednesday as record increases in COVID-19 infections in some U.S. states raised concerns about fuel demand in the world’s biggest crude user, wiping out earlier gains after a surprise drop in U.S. crude inventories.
Brent crude futures LCOc1 were up by 3 cents, or 0.1%, at $43.25 a barrel by 0529 GMT, after dropping 0.4% on Tuesday.
U.S. West Texas Intermediate crude futures CLc1 were down 6 cents, or 0.2%, to $40.98 a barrel, having dropped 1.4% in the previous session.
Inventories of crude oil in the United States dropped by 6.8 million barrels last week to 531 million barrels, data from industry group the American Petroleum Institute showed on Tuesday.
Analysts’ expectations were for an increase of 357,000 barrels. U.S. government data is due Wednesday.
But, the raging COVID-19 pandemic is keeping alive concerns about falling fuel demand causing an oversupplied market as record numbers of coronavirus infections are reported globally, including in the U.S., the world’s biggest consumer of oil.
Reference: CNBC, Reuters
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