The USD moved higher overnight as US equity markets finished higher and treasury yields calmed slightly. Fed Presidents spoke overnight as St. Louis President Bullard rejected any notion of an inter-meeting emergency cut, despite prior speculation that an emergency rate cut would happen given the chaos in the financial markets this week. He also commented that in his opinion the “numbers look pretty good, with 2% growth and low inflation”. Minneapolis President Kashkari also said he was leaning towards further rate cuts and more stimulus. Analysts have given a rate cut of 25 bps a 100% chance of occurring.
Good US numbers and bad Eurozone numbers equally pressured the EUR as the single currency continues to move lower. The European Central Bank meeting occurring next month is a week before the Federal Open Market Committee meeting, and 10 bps cut and more Quantitative Easing (QE) are expected. This could certainly put added pressure on the EUR and will draw the ire of President Trump as the EUR moves lower against the USD. He has previously been critical of European Central Bankers for “allowing the EUR to move lower”.
The British Pound traded higher overnight as traders covered many short positions. Better than expected economic numbers have also helped in the GBP recovery. There is some talk of a “no-confidence” vote on Prime Minister Johnson, and despite no traction occurring as of yet, investors have placed faith in the growing chance of avoiding a “no deal” Brexit. This will be watched closely next week.
USD/JPY traded higher overnight as traders took off safe haven trades. Recovery from risk sentiment was fueled by a more positive move in US Treasury yields versus a negative move in Japanese yields. This arrived in addition to the better-than-expected US equity market move. Comments about the trade war by President Trump have kept safe haven trades sidelined.
The Canadian Dollar moved a bit higher overnight as oil futures moved close to the $55 handle giving the Loonie some support. Moves by the Organization of the Petroleum Exporting Countries are expected to push oil prices above the $57 level and higher oil prices are always a positive indicator for commodity-based currencies such as the Canadian Dollar. The Canadian Dollar tends to follow the USD and good economic news from the US could benefit the CAD.
Markets are focused on the Hong Kong protests and analysts expect an end to the hostilities before the Oct. 1 China National Day holiday. This is the 70th anniversary of the holiday. Observers say the way the Chinese government responds to the Hong Kong situation will be crucial to US-China trade talks.