The U.S. dollar came under considerable pressure yesterday and continued its sell-off overnight before easing in early trading.
St. Louis Fed President James Bullard sparked yesterday’s dollar sell-off when he stated that an interest rate cut may be “warranted soon.” Bullard cited inflation and increased trade risks.
Yesterday’s dovish Fed-speak will draw even more attention to today’s speech by Fed Reserve Chairman Jay Powell. Powell will begin speaking at 9:55 a.m. Eastern in Chicago. Fed Fund futures have shown a dramatic shift in recent weeks with markets now predicting two rate cuts by the end of 2019. Further dovish commentary from Powell could cement market sentiment that the first rate cut could come as early as next month (53% chance) and weaken the dollar. It is our expectation, however, that Chairman Powell will maintain a more “wait-and-see approach.”
Factory orders and durable goods orders will be released at 10 a.m. which could make for a volatile morning in currency markets. Yesterday’s manufacturing data showed the industry slowed to its weakest pace since October 2016, adding another warning sign for the U.S. economy.
What to Watch Today…
- Chairman Powell speaks at 9:55 a.m.
Complete Economic Calendar can be found here.
The Euro shrugged off poor economic data yesterday and rose for its third day versus the U.S. dollar. The Euro held its gains on general dollar weakness even after Eurozone inflation came in slightly under expectations. The Euro is now at its strongest level against the U.S. dollar since April 18th.
The Australian dollar came under pressure after the Reserve Bank of Australia cut interest rates overnight. The cut to 1.25% was widely expected and was forecasts by 36 of 38 economists. But some analysts believe that the central bank could find the scope to cut again later this year to drive down unemployment.
While the AUD/USD recovered some over the past two weeks, the currency pair hit its weakest level since early 2016 as increased tensions between China and the U.S. weigh on the economic outlook for the nation.