A weaker Dollar: Trump vs. Powell
The Dollar continued to lose ground yesterday as the truce between Israel and Iran appeared to continue to hold. There has been a noticeable return to focus upon macro and monetary influences in major currency pairs. Yesterday, Fed Chair Jay Powell provided his semi-annual monetary policy report before the Senate Committee. Powell warned that due to the surprises to the political economy so far this year, there is a risk that macroeconomic data grows increasingly unreliable. Put two and two together and you can see the risk to volatility created by the market’s return to focus upon data.
It was against this backdrop that the Chairman disclosed that he couldn’t rule out a July rate cut. Prospects of such rate cuts continued to keep the Dollar offered into the European afternoon session. Weakness in the greenback was compounded by Trump’s words delivered at the NATO convention in the Hague. Trump was keen to scald the leaking of intelligence documentation and any suggestion that the strikes he authorised on Iran’s nuclear facilities delivered anything short of total destruction.
Trump’s boasting of military successes against Iran are seen as a positive for risk conditions in the market. This manifests as a negative for the Dollar insofar as it unwinds any defensive bid in the Dollar that the potential for wider regional conflict induced. This effect pushes investors to sell Dollar and is not being offset by generating any significant boost to global growth forecasts outside of commodity pricing. GBPUSD and EURUSD both pushed towards their recent highs as the New York session progressed. This morning, those highs have advanced further with GBPUSD and EURUSD gaining a new big-figure.
Discussion and Analysis by Charles Porter
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