Published: Fri, July 12, 2019
Markets | By Otis Pena

Fed chief Powell's comments on trade woes hammer dollar

Fed chief Powell's comments on trade woes hammer dollar

TOKYO, July 11 (Reuters) - Asian stocks gained and the dollar drooped on Thursday after Federal Reserve Chair Jerome Powell reinforced prospects of a USA interest rate cut later this month.

Elsewhere, the Stoxx Europe 600 Index slipped, with Deutsche Bank AG surrendering earlier gains as traders weighed a plan to cut its workforce by one-fifth. Expectations for a 50 basis point (bps) rate cut at a Fed meeting later this month have evaporated, but investors still expect a 25 bps cut due to weak inflation and worries about growing business fallout from the US-China trade war. Nevertheless, on the other side of the Atlantic, Wall Street was firmly in the black as Powell pointed to ongoing uncertainty about trade as a drag on U.S. growth. Yet, this only worked to diminish bets of a 50bps rate cut from the Fed at this month's interest rate decision.

In statements to the HFS Committee, Fed Chair Powell mentioned business investments throughout the USA have slowed "notably" just lately as uncertainties over the economic outlook linger. Earlier, the S&P 500 briefly topped 3,000 for the first time after Powell signaled a willingness to lower rates, citing a slowing global economy and trade issues.

Powell's comments spurred a rally in shorter-maturity Treasuries.

Despite the June non-farm payrolls data still pointing to a robust jobs market, Powell said that the case for lower United States interest rates has strengthened, citing "crosscurrents" pertaining to trade tensions and global growth, while the muted USA inflation no longer appears transitory. In Britain, 'the pound caught some bid as the United Kingdom economy bounced back in May following the decline in April, noted Neil Wilson, analyst at Markets.com.

Investors have taken Powell's comments as confirmation that rates are headed lower at the Fed's next meeting on July 30-31.

But hopes for a deep reduction were dealt a blow on Friday by data showing the USA created far more jobs than expected in June. But Powell told USA lawmakers the case for lower rates 'had strengthened last month given the rising 'crosscurrents in the economy.

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Oil bulls will be encouraged by the transpiring tailwinds, including rising geopolitical tensions, a potential U.S. interest rate cut, and rising summertime demand, while the OPEC+ supply cuts extension effectively places a sturdier floor under Oil prices. While Gold may face some obstacles in the near term, bulls are unlikely to lose any sleep in the medium to longer term given how global growth concerns, ongoing trade developments and geopolitical tensions remain core market themes. "If we see softer-than-expected inflation data tomorrow and if the advance second-quarter GDP (gross domestic product) reading comes in well below 2.0% on July 26th, we will see the case grow for the first cut to be a 50-basis-point one", said Edward Moya, senior market analyst at OANDA in NY.

"The real interest is what happens thereafter", Mellor said.

Powell further noted that the baseline outlook is for the USA economic growth to remain solid, labor markets to stay strong and inflation to move back up to central bank's 2% target, though there is a risk that weak inflation will be persistent - more than the Fed now anticipates.

The Bloomberg Dollar Spot Index was flat.The euro was little changed $1.1217.The Japanese yen was flat at 108.74.The offshore yuan was little changed at 6.8894 per dollar.

In the currency market, fading Fed cut expectations helped the dollar.

West Texas Intermediate crude climbed 0.2% to $60.56 a barrel, the highest in seven weeks.Gold dipped 0.3% to $1,415.26 an ounce.

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