On Wednesday, the US dollar consolidated recent gains ahead of a speech by Fed Chair Powell before the House of Representatives. The dollar index stabilised around 97.48, trading flat on the session. The single currency stayed above the 1.12 psychological support, while the Aussie and the Kiwi fell the most amongst G10 currencies, thanks to disappointing Chinese inflations figures and lower rate outlook. NZD/USD eased as low as 0.6590, down 0.17% on the session. AUD/USD fell to 0.6910, down 0.25% on the day. Further lows are expected, thanks to a slowing Chinese economy.
The recovery in US treasury yields helped to prop up the greenback as investors scale down their dovish rate expectations. Market participants now expects the US central bank to trim the fund rate target band by 25bps to 2%-2.25%, compared to an expected cut of 50bps a week ago. Despite optimist words from Donald Trump following the G20 meeting, trade talks between China and US remain at centre stage. Surprisingly, news released yesterday that Donald Trump last month promised president Xi Jinping that the US government would soften the tone regarding the massive protest in Hong Kong in order to rekindle negotiations failed to boost the equity market. S&P 500 futures are back below the 1,980 threshold, while the EuroSTOXX 600 is stuck below the 388 level.
Given the high level of uncertainty regarding Powell’s next move, traders would most likely remain on the sidelines ahead of Powell testimony. Indeed, it would be one of the last chance for Powell, together with Thursday testimony, to polish its communication before the July 31 FOMC meeting.
By Arnaud Masset