Market Review - 30/07/2019 23:56GMT
Dollar ends largely flat ahead of Fed's rate decision, sterling hits 28-month low on fears of no-deal Brexit
The greenback went through a roller-coaster ride on Tuesday and ended mixed against its peers except for safe-haven Japanese yen and Swiss Franc ahead of Wednesday's Federal Reserve meeting. Sterling extended its recent fall and hit a fresh 28-month low in Asia on continued no-deal Brexit fear before rebounding on short recovering.
On the data front, Reuters reported U.S. consumer spending and prices rose moderately in June, pointing to slower economic growth and benign inflation that could see the Federal Reserve cutting interest rates on Wednesday for the first time in a decade. The Commerce Department said on Tuesday consumer spending, which accounts for more than two-thirds of U.S. economic activity, gained 0.3% as an increase in services and outlays on other goods offset a decline in purchases of motor vehicles.
Data for May was revised up to show consumer spending rising 0.5% instead of the previously reported 0.4% advance. Economists polled by Reuters had forecast consumer spending climbing 0.3% last month.
Consumer prices as measured by the personal consumption expenditures (PCE) price index edged up 0.1% in June as food and energy prices fell. The PCE price index gained 0.1% in May. In the 12 months through June, the PCE price index rose 1.4% after a similar increase in May.
Excluding the volatile food and energy components, the PCE price index rose 0.2% last month, increasing by the same margin for a third straight month. That lifted the annual increase in the so-called core PCE price index to 1.6% from 1.5% in May.
Versus the Japanese yen, although dollar initially gained to a fersh 2-week high of 108.94 at Asian open, failure to penetrate July's high at 108.99 triggered profit-taking and the pair fell to 108.57 after Bank of Japan left interest rates unchanged, and later hit session lows at 108.46 in Europe due to falling U.S. Treasury yields before rebounding to 108.69 in New York on upbeat U.S. consumer confidence data, price last traded at 108.59 near the close.
Reuters reported the Bank of Japan kept its monetary settings steady on Tuesday but added language to its policy statement that it would ease "without hesitation" if the economy loses momentum for achieving the central bank's 2% inflation target.
As expected, the BOJ maintained its short-term interest rate target at -0.1% and a pledge to guide 10-year government bond yields around 0%.
The BOJ also kept intact its forward guidance - or a pledge central banks make on future monetary policy - that commits to keeping current ultra-low interest rates "for an extended period of time, at least through around spring 2020."
Although the single currency remained on the back foot in Asian trading and fell in tandem with sterling to session lows at 1.1133, buying interest emerged and lifted price to 1.1159. Despite intra-day retreat to 1.1139 in New York morning, the single currency later egded higher to 1.1160.
The British pound went through another volatile session and continued its recent losing streak due to rising market fears of a hard Brexit. Although cable easily penetrated Monday's 1.2213 low and tanked to a fresh 28-month low at 1.2120 in Asia, price rebounded to 1.2190 in Europe on short-covering but only to fall back down to 1.2136 in New York after UK PM Johnson's comments before moving broadly sideways in subdued New York afternoon trading.
Reuters reported British Prime Minister Boris Johnson said on Tuesday the next move in Brexit talks was up to the European Union, adding that he did not want to leave the bloc without a deal but had to prepare for that outcome just in case. "If they can't compromise, if they really can't do it, then clearly we have to get ready for a no-deal exit," Johnson said during a visit to Wales. "It is up to the EU, this is their call, it's their call if they want us to do this."
Reuters reported near New York close the UK's Brexit minister Stephen Barclay spoke to the European Union's Brexit negotiator Michel Barnier on Tuesday and told him he wants a deal but will leave the bloc on Oct. 31 with or without one. "Spoke to Michel Barnier today and made our position clear: We want a deal but are leaving the EU on October 31 with or without one," he said in a tweet.
In other news, Reuters reported U.S. President Donald Trump on Tuesday warned China against waiting out his first term in office to finalize any trade deal, saying if he wins re-election in the November 2020 U.S. presidential contest, the outcome could be no agreement or a worse one. Trump said China appeared to be backing off on a pledge to buy U.S. agricultural products, which U.S. officials have said could be a goodwill gesture and part of any final pact. U.S. and Chinese officials restarted negotiations after talks stalled in May in a bid to end a yearlong trade war marked by tit-for-tat tariffs, but must still resolve deep differences, keeping expectations for this week's two-day meeting low.
Data to be released on Wednesday :
UK GfK consumer confidence, nationwide house price, China NBS non-manufacturing PMI, NBS manufacturing PMI, New Zealand NBNZ business outlook, NBNZ own activity, Australia CPI, Japan consumer confidence index, housing starts, construction orders, Germany retail sales, unemployment change, unemployment rate, France CPI, Italy unemployment rate, CPI, GDP, EU HICP, core HICP, GDP, unemployment rate, U.S. MBA mortgage application, ADP employment change, employment wages, employment costs, Chicago PMI, Fed interest rate decision, and Canada GDP, producer prices.
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