Dollar Prolongs Losses as Fed’s Hints Rate Cut

The Federal Reserve:  On Thursday, the dollar traded lower in early trading in Europe. The dollar extended Wednesday losses after the Fed Chairman- Jerome Powell hinted that the central bank would cut interest rates at its end of July policy meeting.

By 3:45 AM ET (0745 GMT) the dollar index was at 96.553 recovering a little from an overnight low of 96.463. That’s 0.5% lower than it was before Powell’s statement.

Powell’s statement also warned that the prolonged uncertainty was weighing on the economic outlook. Also, the Fed’s last policy meeting minutes released on Wednesday informed that some members thought the downside risk about the economic outlook had significantly increased over the recent few weeks.

Other members were suspicious in how the minutes arrived at conclusions, saying they showed a clear bias.

According to Helen Thomas- CEO of Consultancy Blonde Money in Oxford, the summary reflects an “almost total capture of the Fed Reserve” by financial markets and an administration eyeing next year’s elections.

“They’ll argue stuff could weigh on inflation. They’ll point to trade tensions, geopolitics, Brexit, whatever. It doesn’t matter. They’re cutting.” Thomas said.

The dollar’s biggest loss was against the yen. It dropped as low as 107.86 before rebounding to slightly above 108 in Europe. It’s also lost against the loonie, which is now trying the 9-month high the Bank of Canada retained its key rate on Wednesday.

The dollar also lost against the GBP, which has enjoyed support from data showing economic recovery in May. The GBP was at $1.2534, a cent from last week’s lows.

The euro traded up 0.2% at $1.1271, hitting its highest level in almost a week. However, the European Central bank’s policy meeting will determine if it will test the $1.13 level. The minutes will be released at 7:30 AM ET (1130 GMT).

Benoit Coeure – an ECB board member, will also speak at 6:15 AM ET (1015 GMT).

Powell will repeat his statement to the Senate at 10 AM ET (1400 GMT). U.S CPI and jobs reports are due at 8:30 AM ET (1230 GMT). These two may also affect the dollar.

Gold prices rise following Powell’s comments

On Thursday, gold prices rose after the Federal Reserve hinted of interest rates cut. This was despite last week’s strong U.S jobs report.

Gold futures for August delivery traded up 1% to $1,426.05 by 11:57 PM ET (03:57 GMT) on the Comex division of the New York Mercantile Exchange.

Powell said the central bank would counter slowing business investments and growing economic uncertainties.

Now, gold is trading near a 6-year high on hopes that the fed will cut interest rates this month. Investors hope the cut will make non- interest bearing assets more appealing.

China-U.S trade war uncertainties and the Brexit are also backing the safe-haven metal.

Although there will be a few bumps on the way given the level of skepticism in the first gold rally cycle, we think there will be an even greater rush for gold in the coming weeks and months,”

“So gold prices could stay on an upward path as central banks pivot to an easing stance, the U.S. dollar turns gradually weaker with a more dovish Fed and the burden of harmful yielding debt rises.”

Stephen Innes – Vanguard Markets Pte, Managing partner, said in a note cited by Bloomberg.

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