05 June 2019: Powell: “Fed will act appropriately”

Powell: “Fed will act appropriately”

June 5th: Highlights

  • Dollar correction continues
  • D-Day approaches for Conservative contenders
  • Global use of Euro falling

Fed. close to acknowledging the need to act

Jerome Powell, the Chairman of the Federal Reserve, in a speech yesterday, came as close as he has since joining the Central Bank to confirming that the Fed. is concerned about a slowdown in the U.S. economy.

“The Fed is watching current economic developments and will do what it must to keep the near-record expansion going” Powell commented.

This gave a boost to Wall Street as shares resumed their recent climb although the dollar continued its recent correction. With trade data due for release this week, the effect of the dollar’s recent strength will clearly be a factor.

The U.S. economy is front and centre in the current concerns facing the global economy and it was announced yesterday that Treasury Secretary Steve Mnuchin will meet the Head of the Chinese Central Bank to discuss “several issues” although the artificial manipulation of the Yuan is sure to be at the top of the list.

President Trump continues to face public criticism during his State Visit to the UK although he continues to add hyperbole to his promises of a trade deal. Yesterday he described the potential deal as “phenomenal”.

Following Powell’s speech, the dollar’s correction continued. The Index reached a low of 97.00 closing at 97.13. It has now fallen for the past six consecutive sessions.

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Rules for leadership election tweaked

The thirteen became twelve yesterday as one “casualty” was announced in the race to become the leader of the Conservative Party and UK Prime Minister. At the other end of the scale, frontrunner Boris Johnson is apparently consolidating his position by using an unusual tactic for a politician; he is remaining silent!

The method of choosing the winner was tweaked a little yesterday. Acknowledging the cumbersome process of losing one candidate per vote until two remain, the procedure has been changed, in that anyone receiving less than sixteen votes in the first round will be eliminated and in the second round, that number increases to thirty-two. That should speed things up considerably.

While twelve candidates remain, they don’t officially put forward their candidacy until next Monday and the rules to stand have also been tightened. Each candidate will now need a proposer, a seconder, and six other MP’s supporting their candidacy.

The first ballot will be held on June 13th, a week from tomorrow, after which the picture should become clear(er).

The value of the pound versus the dollar has become clouded by the greenback’s recent correction and the euro rate is currently a more accurate barometer of market sentiment.

Versus the dollar, the pound rose to 1.2715 yesterday, closing at 1.2702, while versus the single currency, it reached 1.1234 although it managed late in the day to rally to close at 1.1286.

Banque de France sees a greater global role for Euro

In an exercise in shutting the door after the horse has bolted, the President of the French Central bank called upon the ECB to promote the single currency’s use in international transactions.

The only success that has been seen in this regard in the past twenty years has been its use in oil trades by those countries in dispute with the U.S. and concerned about sanctions and/or asset freezes.

This doesn’t appear to be any more than a statement of confidence from M. Villeroy de Galhau, who is a contender in the race to replace Mario Draghi.

There are rumours that Draghi could be the beneficiary of a change of rules that could allow the President, in certain circumstances, to serve a third term. This will anger the Germans who see it as “their turn” to supply the new president.

If Mrs Merkel gets her way and Herr Mueller replaces Jean-Claude Juncker as President of the EU Commission, that may prove difficult to achieve.

Manufacturing PMIs released so far this week for the major economies have pointed to a return to stability although they still show a contraction. In the Eurozone as a whole, manufacturing output remained at 47.7, in line with both last month’s figure and market expectations.

The euro continues to react to the dollar’s correction, reaching 1.1279 yesterday and closing at 1.1252. When looking at its comparison with other currencies affected by global trade concerns, the euro is starting to gain again versus the JPY.

Having reached a low of 121.47 on Monday, it has begun to recover, reaching 121.85 yesterday.

Have a great day!

About Alan Hill

Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”