Ahead of the Federal Reserve’s interest rate announcement tomorrow afternoon followed by the European Central Bank’s decision Thursday morning, the United States Dollar is trading in mixed but vaguely positive territory this morning.
Overview
With little news out of the US, flows are being driven primarily by news out of China as policymakers showed a fresh wave of support for the nation’s struggling economic recovery. This has driven up risk assets – Asian equities gained overnight, and US stock indices are set to open positive this morning.
As it stands now, expectations of a 25 basis point interest rate hike from the Fed are all but baked in, sitting at 97%. The picture after July, however, is substantially less clear. While Powell has expressed that he would prefer an additional hike after tomorrow’s meeting, markets are on the fence as to whether they believe him. The European Central Bank faces a similar story; a 25-point hike is essentially a done deal this week, but after that, the messaging of its policymakers has painted a very inconsistent picture. Questions about the durability of the Eurozone’s economy continue to plague the ECB, more so than the Fed, so the press conferences from Powell and the ECB’s Lagarde will be of the utmost importance when charting the interest rates for the two economic groups for the remainder of the year. The Bank of Japan also meets this week on Friday, and while it’s highly unlikely it will change its ultra-loose monetary policy, small potential for a surprise does remain.
Investors are moving in choppy fashion this morning; no one wants to be caught on the wrong side of the market with so much uncertainty in the air for the second half of this week. The fireworks start tomorrow at 2PM Eastern.
What to Watch Today…
- No major economic events are scheduled for today
- Monex USA Online is always open
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EUR ⇓
The single currency fell moderately against USD overnight and into this morning, as poor PMI data from Germany and the wider Eurozone yesterday continued to show signs of weakness in the region’s economic picture. While traders question if a second hike this year from the Fed is necessary, the question for the ECB is whether the region can stomach it as many nations teeter close to a recession. The ECB’s Bank Lending Survey also showed that demand for corporate loans fell by the most on record last quarter, another warning sign.
AUD ⇓
The Australian and New Zealand Dollars are the strongest performers of the G10 this morning, with AUD posting a gain of nearly half a percent against USD overnight on news of Chinese economic stimulus. This, combined with risk-on attitudes boosting commodity prices, is lifting AUD before inflation data from the nation tomorrow morning. Though expectations that China will continue cutting interest rates could show some longer-term downside for the Antipodean currencies, the fresh signals of support from the Politburo are keeping AUD afloat for now.
