Euro suffers, pound is growing, & dollar waits for Powell

23 авг. 2019 г.

Powell speaks in Jackson Hole that is what everybody is waiting for. Fed minutes from the meeting also showed the lack of unity among the Fed members. That might lead to the fact that the rate can be either lowered in September or left unchanged. That is complete uncertainty. That is why Powell's comments are that important.

Markets still believe in the rates cut, and afraid to sell the dollar without any existing facts. So Powell’s “pigeon” comments are capable of setting off dollar selling in the foreign exchange market. Therefore we recommend the short dollar. However - if Powell does not give any clear comments, markets may perceive this as the Fed’s unwillingness to cut the rates in September, which could lead to a wave of dollar purchase

Statistics on business activity in the Eurozone and the United States came out.

As for the data from Europe on the one hand, the Eurozone Composite PMI was better than expected above 50, as was the PMI in the services sector. On the other hand, data from Germany showed a sharp deterioration in the situation, and at the highest pace over the past 6 years: respondents are expecting production to decline in the foreseeable future.

The United States also upset. PMI indices came out much worse than expected, and the manufacturing index generally came out below 50, which indicates a reduction in business activity in the United States.

The publication of the last ECB meeting minutes showed that Central Bank officials at their meeting on July 25 discussed the benefits of combining two measures to lower interest rates and bond purchases. Recall that the ECB left its policy unchanged last month, but made it clear that it was preparing to reduce its already negative rate and resume buying bonds in September.

So, the euro does not look like the best thing to buy. We recall our recommendation to sell the euro against the pound.

Moreover, Johnson is stepping up towards agreeing with the EU. Even though Europe in every possible way welcomes his efforts: in particular, Merkel believes that a new deal with Great Britain is possible before the end of October. In general, the Big Seven Conference may be a kind of breakthrough in the stalemate with Brexit. We have strengthened our desire to buy the pound, especially at extremely attractive current prices.