(12 JULY 2019)DAILY MARKET BRIEF 1:USD in the doldrums as investors discount the rate outlook.

The US dollar fell for a third straight day on Friday. The effects of Fed Chair Powell testimony before the Congress on Wednesday continued to be felt. Amongst the G10 complex, the buck felt the most against commodity currencies such as the Aussie (-0.36%), the Kiwi (-0.35%) and the Loonie (-0.35%). The single currency also continued to recover as it consolidated around the 1.1260 mark but gains were more limited. This stem from the fact that the outlook is more uncertain for the euro as the ECB has much less leeway than in Fed.

The ECB didn’t even try to scale back its quantitative easing program such that interest rates are already flat or negative and the balance sheet is bloated. On the contrary, the Fed has some room for manoeuvre: funds rate around 2.25% and the balance sheet was reduced by more than USD 630bn over the last 20 months.

Against such a backdrop, we anticipate that the single currency would continue to appreciate against the buck. However, the effective appreciation will start at the end of the summer, once the loser US monetary conditions will start to kick in and market participants start pricing in further rate cut. We anticipate that the single currency would climb toward the 1.15 threshold, as we get closer to the end of the year.