Dollar Calms After Struggling with 3-Week Low In Hopes For Interest Rate Cut
Some correction in Forex is visible after Monday’s dramatic movements in intraday trade in Europe on Tuesday that is slowly realizing the aftermath of trade war escalation between China and the U.S.
At 03:00 AM ET (0700 GMT), the USD index was just above 97 with 115 points, giving up some of its value against the euro, and with riskier currency such as the AUD. However, it was gaining some of its loses against the yen, while the USD was just flat at 6.8769 against the renminbi.
In hope of the Fed rising interest rates this year investors withdrew the U.S. equity market for safe haven assets, which reflected on the index hitting a three-week low at 96.822 on Monday. The two-year T-note yield dropped eight basis points to 2.19% on Monday and it is now below bottom end of the Fed’s Fund rate target of 2.25%-2.50%.
As John William, the New York Fed President, announced in his speech on Monday there is a likelihood of the persistence of low rate climate, but he did not provide any clear hints on how the Fed may react to the ongoing trade escalations. Regardless, the trade dispute is considered one of the key challenges to the US economy according to the Fed chairman Jerome Powell.
For more clues on the Fed’s reaction we can wait for Kansas City Fed President Esther George who is speaking at 12:45 PM ET (1645 GMT), and Fed board member Mary Daly speaking at 6 PM ET (2200 GMT).
Meanwhile, the first of the big European consumer confidence indicators for May, Germany’s ZEW index, is due at 5 AM ET (0900 GMT), whereas pound sterling will face its test from the monthly labour market report at 4:30 AM ET (0830 GMT), as the market will be interested in seeing whether average earnings are sufficient to justify a rate hike when the Brexit uncertainty lifts.