(29 JULY 2019)DAILY MARKET BRIEF 1:USD quiet ahead of 31 July FOMC meeting

(29 JULY 2019)DAILY MARKET BRIEF 1:USD quiet ahead of 31 July FOMC meeting

29 July 2019, 14:13
Jiming Huang

It seems that investors continue to maintain a constructive view on the market globally. US President Donald Trump threat to devaluate USD or escalating tensions in the Persian Gulf are overlooked by financial markets which are focusing on upcoming Fed monetary policy meeting from Wednesday and a resumption of trade negotiations between the US and China in a light manner from tomorrow until the end of the following day. On the trade front, both sides are expected to show goodwill gestures for future negotiations. Despite the release of better-than-expected 2Q GDP data in the US, the Fed is expected to maintain a dovish stance and cut interest rates by a quarter of a percentage point, its first cut since the financial crisis.

Although FOMC members should favor a rate cut at their July meeting, the greenback is likely to stay robust as investors estimate that significant downside pressures are limited since the outlook for further easing is hazy. While 2Q GDP figure came above forecasts at 2.10% (prior: 3.10%; consensus: 1.80%), supported by robust consumer spending and an unemployment rate close to five-decade low, risks over continued global trade tensions and a slowdown in inflation data, incl. 2Q quarter-on-quarter Core PCE pointing at 1.80% (consensus: 2%) are weighing on the balance. In its statement, the Fed is very likely to leave the door open for another 0.25% reduction along the way without providing further details and monitor future data and trade developments. Meanwhile, no breakthrough are expected from this week two-days trade talks in Shanghai as topics granularity should remain light, with themes concerning mainly Chinese purchases of US agricultural products and sales in favor of Chinese tech giant Huawei Technologies. Yet a positive note should comfort financial markets that further trade negotiations should follow thereafter. Considering upcoming events, we should see the USD little changed following Fed policy meeting.

By Vincent Mivelaz

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