Other
factors that helped drag down the dollar were stability in emerging markets
currencies, particularly the Turkish Lira and the Chinese Yuan. Meanwhile,
concerns over President Trump’s political future after Paul Manafort and
Michael Cohen's convictions have also created lots of noise.
However,
when looking at the U.S. economic fundamentals, neither President Trump’s
comments or current political dramas will steer the Fed away from its gradual
tightening policy. Minutes from the latest Fed meeting showed that policymakers
are still positive about current economic developments despite flagging some
concerns about trade tensions and the flattening of the yield curve.
Investors
are almost certain that a 25-basis point rate hike will occur in September, but
a fourth rate hike in December remains questionable. According to CME’s Fed
Watch, the probability of raising rates next month sits at 96% but the chances
of another one in December is 66.1%. That’s why Fed Chair Jerome Powell’s
speech on Friday at the Jackson Hole symposium will be watched very closely. http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html
Although
Powell will not provide a definite answer on whether the Fed will hike rates
two more times this year, he might still provide some signals to investors. If
Powell believes that current trade tensions between the U.S., China and the
rest of the world will possibly start impacting economic growth, this suggests
the Fed may begin considering slowing down the tightening pace.
However,
Powell may also want to show that he does not bow to political pressure after
President Trump’s comments, and given that most U.S. economic data remains
robust, his speech is likely to be hawkishly tilted.
Eurozone
flash PMIs are scheduled for release later today and it will be interesting to
see if data starts reflecting the negative mood caused by current trade
tensions. A negative surprise in German PMIs will likely accelerate the drop in
EURUSD.
Meanwhile
in Australia, political uncertainty has dragged down the Australian dollar
heavily after several ministers resigned their posts, putting Prime Minister
Turnbull’s leadership at risk. Expect AUDUSD to remain under pressure until the
dark clouds clear
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