U.S. Dollar Flat After Trump’s Criticism of the Fed

Isabelle Zammit
Isabelle Zammit

11 June 2019

U.S. dollar flat

Tuesday saw the U.S. dollar flat during trading after President Donald Trump once again expressed his displeasure with the way the Federal Reserve has been handling the economic situation.

President Trump’s chief complain revolves around how the Fed is keeping the interest rate far too high while also practicing what he called “ridiculous quantitative tightening.”

The president shared his opinion in a tweet in which he also stated that the U.S. is at a big disadvantage due to the fact that other currencies, including the euro, “are devalued against the dollar.”

The euro experienced gains of 0.1% and was, therefore, trading at 1.1319. Conversely to the Fed, the European Central Bank has stated outright that they will cut interest rates and restart the asset-purchasing program if it’s necessary to provide the economy with support.

President Mario Draghi clearly stated that the ECB will support the economy last week. On Tuesday, this message was reiterated by Olli Rehn, Governor of the Bank of Finland, and Peter Kazimir, Governor of the National Bank of Slovakia. Some believe that Olli Rehn will succeed Mario Draghi.

U.S. PPI Figures Could Provide Fed with More Leeway

The U.S. producer price index rose by 0.1%, which was on par with expectations. Excluding energy and food, the PPI was up by 0.2%, and once trade services is removed, the figure is 0.4%. Generally, these results are in line with forecasts, but they are also experiencing the slowest growth in a year.

The PPI measures average prices changes domestic producers receive for their output and is used as an important indicator for inflation. Some feel that these figures are indicative of the inflation being well-under control, while some experts believe that inflation is slowing more than expected, which could give the Fed some wiggle room to cut rates.

Fed Chairman Jerome Powell’s stated last week that the bank would take the necessary measures to support economic expansion considering that the labor market is strong, and inflation is close to the 2% goal.

These statements along with the PPI figures have led some traders to consider that the Fed might actually be willing to cut interest rates. However, analysts expect that the Fed won’t touch rates at their June 19th meeting. Conversely, the market believes there’s a 76% chance the bank will cut rates in July.

Thus, the U.S. dollar index remained flat at 96.708. However, the dollar was trading higher against the yen at 108.64. The British pound also rose, with the GBP/USD trading at 1.2717.

Market Somewhat Optimistic for G20 Summit

The market is now fully focused on the G20 meeting, which will be taking place on June 28 – 29 in Osaka, Japan. There is some optimism surrounding the meeting, but only in the sense that there is hope the U.S. – China trade tensions will be resolved in one way or another.

This is despite President Trump stating on Monday that he was willing to add even more tariffs if his talks with President Xi Jinping don’t make any progress at the summit.

British Pound Loses Against the Euro

The British pound weakened slightly against the euro as the contest for a leader for the Conservative Party started this week.

However, there is still a lot of negative sentiment connected to the eurozone. This is mainly on the back of weak economic data. The sentiment is quite similar in the U.K. and, after weak manufacturing numbers, analysts expect that Bank of England will cut rates, despite the hawkish stance of policymakers.

In fact, one of these policymakers, namely Michael Saunders, stated on Monday that the BoE will probably have to increase rates sooner than the market expects.

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