With everyone concentrating on the ongoing trade talks between the US and China, Fed Chairman Jerome Powell had a surprise meeting with President Trump and Treasury Secretary Mnuchin at the White House yesterday. The Fed issued a statement following the meeting that the topics discussed were the economy, growth, employment and inflation. According to the Fed, Chairman Powell’s comments at the meeting were “consistent” with his remarks to Congress last week. The President tweeted that the meeting was “very good and cordial”. His tweet that interest rates were discussed, including negative interest rates, were the catalyst to sending the USD lower in trading yesterday.
EUR/USD moved higher as the market digested trade news and the White House meeting. As the single currency moved higher in early trade, the tweet about interest rates, specifically negative interest rates, got the market into full buying mode and there is talk of EUR/USD testing higher levels. Nothing has changed regarding the Euro economy, but if there are any positive surprises in economic releases this week, this could set off a fresh buying interest in the EUR.
GBP/USD is firmer this morning ahead of Prime Minister Boris Johnson’s debate with Labor Leader Jeremy Corbyn. Brexit and nationalization will be among the topics debated, as well as health care in the UK. Opinion polls continue to show the Conservative party leading the Labor party, but Johnson needs to win this debate, otherwise sentiment could change. GBP/USD seems poised to move higher if Prime Minister Johnson wins this debate. Positions in GBP are beginning to show an overbought nature so any surprise outcome could see the GBP fall.
USD/JPY moving somewhat lower as traders re-entered safe haven trades following the comments after the Trump-Powell meeting. BOJ Governor Kuroda testified in front of Parliament and stated there is plenty of room to deepen negative interest rates from the current level of -0.1%. He did say he expected the Japanese economy to continue expanding and that the inflation target of 2% should be met.
Concerns about the US-China trade deal sent the USD lower against the CAD and traders seem more concerned about that than weaker oil prices. Oil prices fell for the second straight day. Most traders see the rise in US oil inventories as one of the main reasons for the depressed oil price.
Adding to the USD’s fall yesterday were concerns that the US-China trade negotiations are not going as well as previously reported. CNBC reported that China is now pessimistic about reaching a deal, since President Trump has shown reluctance to roll back tariffs. According to former White House Chief Economic Advisor Gary Cohn, the President is concerned about losing “credibility” if he “blinks” on reducing tariffs.