Markets took their cue from the Federal Open Market Committee’s guidance from Wednesday evening onwards as Fed Chair Jerome Powell all but conceded that the Fed will cut US interest rates when they hold their next meeting in July.
The Fed will “act appropriately to sustain expansion.” The fact that inflation in the US is benign allows room for manoeuvre to reduce interest rates.
On the back of the Fed’s guidance US equity markets touched record highs and simultaneously Gold broke through heavy congestion to top out above 1400oz- its highest level in 6 years. Oil also benefited from escalating tensions between the US and Iran as last week a US drone was shot down above international waters while flying close to the Iranian border. The US dollar weakened against a host of currencies, notably the Canadian dollar after a strong inflation report pushed the Canadian dollar higher. New Zealand GDP also surprised to the upside.
To this week and there are several US data announcements that will either confirm or question the rationale for a July interest rate cut. Among these are Consumer Confidence on Tuesday (exp 131 for June), GDP on Thursday (1st quarter exp 3.2% Y/Y) and US Core Personal Consumption Expenditure (exp 1.6% Y/Y for May) on Friday. Of these PCE, “the Fed’s preferred guide for inflation” will be anxiously awaited. Fed Chair Powell will also be in the hot seat on Tuesday as he is due to speak on monetary policy and the Fed’s economic outlook. Bar some incredibly strong numbers, a quarter point cut in July is almost in the bag. Conversely, some very poor numbers may add momentum to a gold move that has taken hold, at least partly due to safe-haven hedging against recessionary fears.
The best of the rest is a New Zealand interest rate decision on Wednesday (exp hold at 1.5%), Eurozone CPI on Thursday (exp 1.4% Y/Y for June) and Canadian GDP on Friday (exp 1.5% Y/Y for April).
Notable Central Bankers in the limelight will be the Reserve Bank of Australia’s Governor Lowe who will speak on a panel on Sunday night in Canberra and the Bank of England’s Carney and other Monetary Policy committee board members who will report to Parliament on Wednesday.
The week closes out with the enormously important G20 meeting which commences on Friday and will be held in Osaka, Japan.
Good luck and good trading! Ben Robson
Ben Robson is the CEO of Spectrex Commodities and author of Currency Kings- How Billionaire Traders Made Their Fortune Trading Forex And How You can Too.
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