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The week in review
Any hope of Fed Chair Janet Yellen’s congressional testimony lifting the USD this week were sorely disappointed.
Steering clear of any hawkish hints, Yellen held to the Fed’s aim of reducing the balance sheet and hiking rates again before the end of the year. She views the risks to the US economic outlook as being “roughly equal.”
Data on Friday sent the dollar further into a swan dive. Retail Sales, consumer sentiment, and inflation data both came in worse than expected. This confirms a trend of poor US data since the beginning of 2017, and makes the chance of another rate hike in the next six months less likely.
Low inflation is a key concern for policymakers. If it does not pick up this could continue to weigh on the dollar. Speaking at an event in Mexico, Dallas Fed President Robert S. Kaplan said he would like to see more progress on inflation before hiking rates again.
The Chicago Mercantile Exchange’s FedWatch tool now see less than 50% chance of fed hike by the end of the year.
CAD pushed to a 13-month high against the US dollar after the Bank of Canada raised interest rates for the first time in seven years. The BoC was aggressive with their outlook, dismissing weaker data as “transitory” and signaling more hikes to come.
The Canadian dollar is one of the top performing currencies this week on optimism for tighter monetary policy. Bleak economic data from the US Friday has USD/CAD once again threatening to break the June 2016 low, and CAD is up around 2% against GBP, EUR, and the yen.
Brexit banter. Lawmakers in London have accepted that they will have to pay a divorce bill to the European Union. Brexit Minister Joyce Anelay wrote in a statement to Parliament that “the government recognises that the UK has obligations to the EU, and the EU obligations to the UK, that will survive the UK’s withdrawal — and that these need to be resolved.” This is a marked departure for the British government. Just two months ago, Prime Minister May floated the idea of money owed to the UK and alluded to a desire to keep Britain’s proportion of EU assets.