Dollar tumbles in thin summer trading as dovish Fed Williams' comments catch market off guard

Market Review - 19/07/2019 00:36GMT  

Dollar tumbles in thin summer trading as dovish Fed Williams' comments catch market off guard

Although the greenback traded relatively narrowly in summer lull in Asia and European session on Thursday, dovish remarks by New York Fed President John Williams rattled subdued New York afternoon trading and sent dollar tumbling against its peer currenices. Sterling caught a bid in European morning on upbeat U.K. retails sales data together with easing of no-deal Brexit concerns.  
  
Reuters reported dollar fell broadly on Thursday as an influential Federal Reserve official bolstered bets on a preemptive interest rate cut later this month because rates and inflation are low even as the U.S. economy has been expanding.  
Fed policymakers cannot afford to keep their "powder dry" and wait for potential economic problems to materialize, New York Federal Reserve President John Williams said at a central banking conference.  Williams' rate-cut view was echoed by Fed Vice Chair Richard Clarida, who told Fox Business Network the central bank might have to act early and not wait "until things get so bad."  
  
Versus the Japanese yen, although dollar initially fell to 107.65 in Asian morning on weakness in Asian stocks and then to 107.62 at European open, price eraed its losses and rose to session highs at 108.01 in New York morning on strong rebound in U.S. Treasury yields, however, the pair later tumbled to a 3-week low of 107.22 following dovish remarks by Fed's Williams.  
  
Although the single currency gained to 1.1244 at European open, price met renewed selling and dropped to session lows at 1.1206 after Bloomberg's report on possible ECB's eading before moving broadly sideways in subdued New York morning. Price later jumped to 1.1280 on broad-based usd's weakness following Fed Williams' dovish comments.  
Bloomberg reported staff at the ECB have begun studying a potential revamp of their inflation goal, in a move that could potentially embolden policymakers to pursue monetary stimulus for a longer period, citing officials familiar with the matter.  
  
They are informally analysing the central bank's policy approach, which includes questioning the current inflation target mandate of 'below, but close to 2%' and whether or not it is still appropriate for the post-crisis era.  The report says that the work done so far is confidential and preliminary and that any change to the goal itself would probably require a formal review.  
  
Although the British pound moved narrowly in Asia, price found renewed buying at 1.2434 at European open and rallied to 1.2494 after media reported that EU's Barnier said that they are ready to work on alternative arrangements for Irish border as well as upbeat UK retail sales data before retreating to 1.2465 in NY morning. However, the pair then moved higher to session highs at 1.2497 after UK lawmakers voted for final wording of plan to make it more difficult for new PM to force through a no deal Brexit. Cable later jumped to 1.2556 after Fed Williams' comments.  
  
Reuters reported British retail sales rebounded unexpectedly in June, according to official data that may raise hope the economy will sidestep a downturn in the second quarter.   Monthly retail sales volumes jumped 1.0%, the Office for National Statistics said, well above all forecasts in a Reuters poll of economists that had pointed to a 0.3% drop.     
Reuters reported Britain's Business Minister and International Development Minister both abstained in a key vote on Thursday which the government lost, aides said, defying an instruction from Prime Minister Theresa May.     
The government suffered a heavy defeat earlier on Thursday as lawmakers backed a plan which would make it more difficult for May's successor to force through a no-deal Brexit by suspending parliament.  
  
On the data front, Reuters reported the Philadelphia Federal Reserve said on Thursday its barometer on business activity in the U.S. Mid-Atlantic region jumped to its strongest level in a year in July amid ongoing trade disputes between the United States and its trading partners.    
The regional central bank's index rose to 21.8, the highest level since July 2018. Analysts polled by Reuters had forecast a reading of 5.0 this month.  Last month, the index had fallen to 0.3 which was the lowest since February.  
  
Data to be released on Friday :    
Japan national CPI, core national CPI, Germany PPI, EU current account, UK PSNB, PSNCR, Canada retail sales and U.S. Michigan consumer sentiment.