In early trading in Europe today, the dollar climbed higher amid a generally steady and quiet market as the focus now shifts to Fed Chair Jerome Powell’s speech.

The dollar index was up 0.2% by 3:30am, up from last night’s levels at 98.222, and its largest gain against the yen and Swiss franc.

GBP managed to climb slightly on the back of PM Johnson’s meetings with German Chancellor Angela Merkel and French President Emmanuel Macron, while the Chinese yuan fell to a new 11-year low, for the second consecutive day. 

President Trump is putting an enormous amount of pressure on Powell to take aggressive action, having called for a cut of 100 basis points, in preparation for a global economic slowdown as a result of the ongoing effects from the US-China trade war.

For the first time in nearly 10 years, US manufacturing PMI data has dropped below 50, a clear indication that the global economic slowdown has not only hit China, Japan, and Europe but the US too.

Due to strong employment and retail sales data, Fed officials have remained from easing monetary policy and thus prevented further rate cuts.

Kansas City Fed President Esther George, one of two dissenters from last month’s decision to cut the Fed funds rate by 25 basis points, reiterated her opinion on the matter, while Bank of New York strategist John Velis said the following in a note to clients:

Relative to market pricing, we think that Powell is likely to under-deliver…look for continued USD strength, and likely some weakness in the high-beta section of the currency market.

The negative rates across Japan and Europe have resulted in an overall negative long-term outlook, shared by analysts and economists alike.

Indeed, the black hole of monetary economics has rippled across the web. On Twitter, Former Treasury Secretary Lawrence Summers said that he believes the US is “only one recession away” from joining Europe and Japan, “with essentially zero or negative yields over a generation”.

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Dalia Hilmi
Author

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