US President Donald Trump tweeted that China and Europe are manipulating
their currencies to compete with USA and not to be left behind, Bank of England
Governor Mark Carney also talked down the pound sterling. Federal Reserve Chair
Powell’s testimony to Congress was seen as dovish, suggesting an interest rate
cut in the US later this month is a done deal. And that would happen amid full
employment, solid economic growth of 3% per year and S&P 500 reaching an
all time high above 3000. All leads to the suspicion of a return to a currency
Gold remained above $1400 mark as Bloomberg reported that central
banks buying in 2019 is on track for 700 tons, which represents an increase of 73%
compared with last year. The main reasons were slowdown in economic growth,
geopolitical tensions and trade disputes as well as attempts to diversify reserves
from fiat currencies.
China June Inflation data showed CPI at 2.7%, in line with
expectations the lowest since August 2016, which could be problematic for
industrial profits going forward.
In the US, FOMC June meeting minutes saw many Fed officials
calling for a rate cut as a ‘cushion for shocks’ adding that inflation
expectations were inconsistent with the 2% goal.
In UK, the pound fell below 1.25 to the dollar to a low of 1.2440,
the weakest level since April 2017. The slump was based on the lingering Brexit
uncertainty still weighing on the economy which is expected to contract in Q2,
the first time in 7 years. UK Prime Minister contender Boris Johnson maintains
that the country must be prepared to leave EU without a deal. On Friday GBPUSD
rebounded slightly around 1.2550.
Meanwhile the former International Monetary Fund Chief Christine Lagarde
is set to be confirmed as the new ECB President in October. At the same
time European Commission warned of rising downside risks and downgraded the
euro zone economic outlook in its latest forecast. ECB minutes also indicated a
governing council agreeing on the need to prepare for policy easing. Despite
that we can see EURUSD holding between 1.1240 to 1.1280 range.
Gold’s breakout above levels that held repeatedly since 2013, making a high of $1439, has been described as a perfect storm of technicals and fundamentals. Geopolitics, in the form of US tensions with Iran, Sino-US trade dispute, a Federal Reserve getting ready to ease again constantly bullied by a President who desperately wants a weaker dollar (and higher stock market), all lined up to support the precious metal.
China’s Commerce Ministry said tariffs by certain countries are a threat to the global economy, although they agreed to keep open the communication channels with the US. Meanwhile US Commerce Secretary Wilbur Ross reiterated Trump’s tariffs threats are not a bluff, although his camp is looking for a ‘reasonable deal’ with China over trade.
Presidents Trump and Xi will meet on Saturday in Japan at the G20 summit and the media seems cautiously optimistic, although both sides aren’t giving much away.
Boris Johnson, the front runner to become the UK Prime Minister, said Parliament is now ready to back a no-deal Brexit and repeated his promise to exit by October 31 this year. Fear grows among Brussels politicians that a no-deal Brexit is increasingly becoming unavoidable. After encountering good support at 1.25 to the dollar, the sterling soared to 1.2750 which was good resistance in the past.
ECB President Mario Draghi hinted last week that more stimulus will be needed if the outlook remains concerning, amid lingering uncertainty regarding trade tensions. A string of economists were quick to predict the central banker will emphasize that more and more in the near future and eventually take action, possibly from September onwards. The EURUSD is sitting just below 1.14.
After going south for a good 18 months, Bitcoin more than doubled since early May reaching above $13,800 and the steep surge made everyone remember the booming second half of 2017. It retraced to $10,500 and looks to be stable just below $12,000 on Friday. However Bloomberg reports ‘the pop culture zeitgeist isn’t quite as giddy’ as apparently Google searches for the word bitcoin were five times higher in December 2017. On the other hand, that episode made Bitcoin & co significant enough that a lot more people are now clued up about them. Facebook announced plans to issue their own crypto currency, Libra, in a sign that institutional adoption is gathering pace.