Rising chance of Fed rate cut?

The US dollar started the week on the back foot following growing speculation that a rate cut is back
on the table at Federal Reserve. There is no end in sight for the trade dispute with China and its
increasing impact on global markets is definitely making investors nervous. The week ended with
disappointing non- farm payroll figures of 75K versus the expectation of 175k, which leads to the US
dollar expected to lose value further.
Replying to repetitive accusations against his country’s policies, China’s foreign ministry said that
every setback in trade talks is ‘due to US breaking consensus’. Amid stalling negotiations, it is unclear
if China will devalue its currency in retaliation to US tariffs or employ a more targeted approach i.e.
restrict exports of rare earths to the US (China accounts for more than 70% of global output).
Back in the UK on the Brexit front, Tory leadership contender Boris Johnson said if he gets in ‘we’ll
come out of Europe with a deal or no deal by 31 October’. The no deal option is causing a lot of
uncertainties within UK, which could possibly cause sterling to drop across the board.
European Commission reportedly has sent a letter to Italy blaming it for a violation of debt reduction
rules and is preparing to apply a $4 billion fine. Responding to this, Italian deputy prime minister
Luigi Di Maio commented the EU made ‘absurd’ requests on investments. Away from domestic
squabbles, economic fears spread as the European Central Bank signalled its readiness to embark on
a fresh round of bond purchases. So we have a dovish signals from both the ECB and the Fed, but the
euro is the currency currently coming out stronger breaking above 1.13 against the greenback.
In a move that was widely anticipated, the Reserve Bank of Australia’ cut cash rates by 25 basis
points from 1.5% to 1.25% at its latest monetary policy meeting on 4 June. That represents a record
low for Australia and is the first slash by the central bank since August 2016. The decision was taken
to support jobs growth, achieve inflation target as well as to deal with a weakening housing market.