The dollar gave away some gains to the pound and the euro Wednesday after Federal Reserve Chairman Powell said two little words: “just below.” The greenback is fluctuating against the euro after worse-than expected data out of the U.S. Brexit continues to weigh on the pound.
Powell propels rate speculation
In a speech to the New York Economic Club Wednesday, Jerome Powell took a dovish tone saying that interest rates are “just below” the neutral level.
The neutral level is when rates aren’t stimulating the economy, but they also aren’t restricting it. For Powell to say rates are just below signals to investors that there will be fewer rate hikes in 2019. If the Fed hikes rates too fast it risks restricting the economy too much.
In recent weeks, Powell has drifts from his stay-the-course, tight-lipped speeches, opening up the idea of pausing rates in 2019. A number of factors are playing into this, but most importantly the data is showing a slight slowdown in the U.S. economy. President Trump’s dissatisfaction with hikes could also be playing a role, although it’s unlikely Powell will ever admit it.
The EUR/USD shot up from 1.128 to 1.137 after Powell’s remarks and it remains around that level Thursday, fluctuating a little ahead of the FOMC meeting minutes release later today.
The pair hit 1.135 this morning before the euro regained traction off of weak data out of the U.S.
PCE and jobless claims miss
The core personal consumption expenditures for the month of October missed expectations of 1.9% growth, coming out at 1.8%.
There were also more initial jobless claims for the week ending Nov. 23 than estimated, coming out at 234,000 instead of 220,000. The continuing unemployment claims for the week ending Nov. 16 were 1.710 million instead of 1.664 million.
The increase in unemployment is one factor playing into the Fed’s evaluation of the rate path and how fast it should proceed.
Preparing for a no deal
The Bank of England released a report Wednesday on the various outcomes of Brexit, including a no deal.
The BoE said that a disorderly Brexit with no deal could cause U.K. GDP to fall 25%.
It seems as though everyone is telling businesses to prepare for a no deal Brexit just in case – even Prime Minister Theresa May.
The concerns over Brexit are causing the pound to fall against the dollar this morning after gaining from Powell’s comments Wednesday.
The GBP/USD pair is back down to 1.277 after hitting as high as 1.285 Thursday morning.
Oil dips below $50 per barrel
A barrel of West Texas Intermediate dipped below $50 per barrel this morning as leaders from top oil-producing nations travel to Buenos Aires for the G20 Summit.
WTI hit its lowest levels in more than a year as Russia’s Vladimir Putin said that prices were just fine for him. Putin will meet with Saudi Arabia’s Mohammed bin Salman this weekend.
An increase in global production is causing the price drop.
The USD/CAD pair climbed up to 1.33 as oil dropped, but then returned to 1.32 after weak U.S. data.