The U.S. Dollar is trading in much stronger ranges against its major peers while faltering a bit against Emerging-Market currencies following an eventful week that left markets with mixed feelings about the remainder of the year.
Overview
It is clear that nobody wants “stagflation” to continue, which is why the Federal Reserve decided to start combatting the issue of softening labor with an interest rate reduction that eases the financial environment.
For some major banks, this is the first step in making financial conditions easier, but in his press conference, Chairman Jerome Powell did not guarantee that this is the beginning of a prolonged loosening cycle and warned that inflation is elevated. If price growth accelerates in its pace, members could change their tone. For now, odds of another cut in October stand at over 90.0%.
Overall, this event turned out to be a “hawkish cut,” with Powell’s calm demeanor exuding a little more positivity and confidence than what risk markets originally envisioned. It is also important to keep in mind that this little bit of stimulus comes during a time when Gross Domestic Product has actually recovered and truly gotten away from contraction, which contrasts bigly with how the rest of the globe is performing. This does merit some Buck appreciation, countering the typical relationship between lower rates and subsequent lower currency value. We will get plenty of data that will paint a picture of productivity next week with S&P Purchasing Managers Indices as well as revision of Q2 activity and GDP.
What to Watch This Week…
- Monex USA Online is always open
The complete Economic Calendar can be found here.
EUR ⇓
The Euro is dropping in strength, losing ground since Wednesday after hitting its highest point over the Buck in four years. Issues in France have made headlines that have been outdone by worry about central bank policies in the U.S., but that point at the Euro-zone’s second largest economy facing an unstable time politically as spending along with revenues have become points of contention. It is possible the shared currency will have room to lose ground after a surge of over 9.0% ever since March 31st. Next week we will also get Euro-zone aggregate PMI readings.
MXN ⇓
The Mexican Peso has dropped slightly in value, being one of the least affected currencies against the U.S. Dollar along with other Emerging-Market currencies. In Mexico, economic indicators lately have shown better results than forecast and today was no exception with second quarter Aggregate Supply and Demand registering an expansionary reading of 0.3% instead of the expected (-0.2%) contraction. Retail Sale as well as Bi-weekly Consumer Price Index will be available, which could uplift Peso if the trend of good economic performance remains.
