USD - United States Dollar
The Greenback rallied around 0.1 percent yesterday along with the North American equity market, as President Donald Trump showed hopes for a trade trace. Trump said he would have an "extended meeting" with Chinese counterpart Xi Jinping at the G-20 summit next week after the two had a "very good" phone call.
Most market participants don't expect a rate move today by the Fed, but nobody knows what surprises we might have after 2:00 pm EST. If the Fed does not surprise markets with a rate cut, market participants will eagerly look to see how the "dot plot" forecasts are updated. Every quarter, the Fed shows how the policymakers' expectations are changing for interest rates over the next few years. The last update was in March and, at that time, 11 of the 17 FOMC officials expected rates to remain on hold for the rest of the year, 4 expected a 25-basis point increase, and 2 expected interest rates to rise. Market participants are expecting dovishness from the FOMC, and looking at the FX market movements this morning, it seems like the federal funds futures have priced in a modest probability of a cut for today's meeting, but they are placing a more substantial likelihood on the first cut coming at the next FOMC on July 31st.
BBG report-The White House noted the legality to dismiss Fed Jerome Powell in February, soon after President Donald Trump talked about firing him. When Trump was asked on Tuesday whether he still wants to fire Powell, Trump told reporters: "Well, let's see what he does." Clearly Trump is waiting for Powell and the Fed to start cutting rates as soon as possible to pump the economy, avoid likely recession and win its second period as president of the U.S. Legal experts say it isn't clear whether Mr. Trump has the authority to remove Mr. Powell as chairman before the Fed chief's term expires in 2022.
In the U.K., Boris Johnson has been accumulating support from members of Parliament across the party’s Brexit spectrum. At a BBC debate yesterday, he appeared to reduce his previous hardline rhetoric about walking away without a deal. The GBP FX crosses are increasing sharply this morning. At the time of this writing, the Sterling is 0.4 percent higher than the Euro, 0.6 percent higher than the USD, 0.6 higher than the Yen, and 0.5 percent higher than the Loonie. On top of that, another bullish narrative for the Pound came from BofAML, which mentioned that rising inflation expectations might be driving the Bank of England to maintain a more hawkish stance than the macro data seem to justify.
Australian and New Zealand dollars were the big winners yesterday after President Trump and Chinese President Xi Jinping agreed to meet in Japan next week. However, the Aussie and Kiwi dollar cannot retain the bulk of gains they made late yesterday. Also in Australia, RBA Governor Lowe continues to reiterate the RBA’s easing bias.
Finance ministers and central bankers reaffirmed commitments made in March 2018 to refrain from competitive FX devaluations. The U.S. Treasury increased the number of economies it scrutinized to 21 from 12 and expanded its watch list. It again refrained from labeling China, a manipulator.
1.3279 - 1.3384 ▼EUR/USD:
1.1187 - 1.1345 ▲GBP/USD:
1.2582 - 1.2705 ▲AUD/USD:
0.6837 - 0.6901 ▲NZD/USD:
0.6505 - 0.6603 ▲