- GBPUSD tumbles after BoE cuts rates.
- Fed keeps September rate cut hopes alive.
- US dollar rebounds from yesterday’s lows.
USDCAD: open 1.3833, overnight range 1.3800-1.3836, close 1.3808, WTI $78.52, Gold, $2433.10
The Canadian dollar attempted to rally following the FOMC statement and Fed Chair Powell’s press conference yesterday but was unable to sustain the gains. Additionally, the Canadian dollar could not maintain any upside momentum following a better-than-expected Canadian May GDP report.
Canada’s economy grew by 0.2% m/m in May, a tick higher than the 0.1% forecast but a tad softer than the 0.3% seen in April. Statistics Canada’s estimate for June GDP is 0.1%. The data shows that the Canadian economy is growing, but it is more smouldering coals than a forest wildfire.
Yesterday’s FOMC meeting didn’t do the Canadian dollar any favours. The Fed left rates unchanged as anticipated and issued a somewhat dovish statement. Fed Chair Jerome Powell hinted that rates could go lower in September but did his best to demonstrate a lack of enthusiasm for such a move, lest financial markets get overly enthusiastic.
The Fed appears to be overly cautious, which may be due to their recent performance. They fumbled and bumbled their way through the post-COVID surge in inflation and looked really stupid when “transitory” proved to be “tenacious.” They waited too long to raise rates to stop inflation from rising and now are at risk of causing an economic setback from delaying the inevitable. The Powell-led FOMC has re-imagined the carpenter’s axiom “measure twice and cut once” into their own monetary policy mantra: “analyze, assess, audit, and appraise, then cut...maybe.”
Escalating tensions in the Middle East are supporting higher WTI oil prices, which rose from $78.31/b to $78.88/b overnight. The gains got additional support after the EIA announced US crude stocks fell by 3.43 million barrels last week.
EURUSD is bouncing in a 1.0777-1.0835 range due to divergent ECB and FOMC interest rate outlooks.
GBPUSD is at the bottom of its 1.2754-1.2864 range. The low occurred following the Bank of England announcing a 25 bp rate cut. The Monetary Policy Committee is divided as 4 of the 9 voting members voted to leave rates unchanged.
USDJPY had a choppy overnight session and traded in a 148.51-150.34 band. The sharp drop in US 10-year Treasury yields to 4.06% today from 4.49% on July 1 is a major factor as traders buy JPY to unwind carry trades.
AUDUSD traded in a 0.6514-0.6551 range, but weak Chinese PMI data acted as a drag on the rally.
US ISM Manufacturing PMI data is the key economic report on tap today
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