All eyes will be on Fed Chairman Jerome Powell this morning, as any comments made may affect the equity, bond, and currency markets. A number of Fed officials have been quoted this week that they are not in favor of further rate cuts, but Powell has to convince his audience that rate cuts will continue, if needed. The Fed chair finds himself stuck between his own committee and an angry President. His actions need to convince the financial markets that they can have confidence in the Fed to prevent a recession. Market analysts are still pricing in a 90% rate cut next month, but that number had been as high as 100% earlier this month.
The single currency remains under pressure as trader sentiment looks to move the EUR to lower regions going forward. Poor economic news continues to dominate and most analysts are expecting further rate cuts and possible further QE when the European Central Bank meets next month. Most traders expect rates to move lower by 10 bps. EUR also can be pressured by the Powell speech later today.
The Pound moved higher on Thursday due to optimism that a Brexit deal could be agreed upon between the UK and the EU. German Chancellor Merkel denied that she had set a 30-day deadline for Prime Minister Johnson to find a solution to remove the Irish backstop for the withdrawal agreement. The G7 meeting this weekend in Paris could bring more news regarding Brexit. The Irish backstop looks to continue to be the problem with the chances of a no-deal Brexit rising from 20% in May to over 40%. Johnson is also expected to speak with President Trump regarding UK-US trade, post-Brexit.
JPY is currently on the sideline as traders ease away from “safe-haven” purchases. Poor economic inflation data has added to the pressure on JPY as traders expect the Bank of Japan to continue its dovish stance. Latest PMI figures for August were 49.5, better than the previous 49.4, but below expectations of 49.8. A PMI number below 50 indicates contraction of an economy, while above 50 indicates expansion when compared to the previous month.
According to reports, the European Union will halt imports of Canadian cherries and other fresh fruits beginning September 1st. This is based on new import requirements regarding pests. With oil prices trading quietly and market concern regarding the Powell speech, there has been added pressure on commodity based currencies.
According to market analysts, the slowdown in the Chinese economy is having a considerable effect on the rest of the world. Oil prices are lower as demand for Chinese oil has lessened. According to a survey conducted by Bloomberg, analysts expect the next round of US tariffs to push the Chinese annual GDP growth below 6%. This would be China’s slowest expansion in almost two decades.