Published: Thu, July 11, 2019
Money | By Ethel Goodwin

EUR/USD Attempts Recovery Ahead of Powell's Testimony

EUR/USD Attempts Recovery Ahead of Powell's Testimony

Powell said the central bank stands ready to "act as appropriate" to support record USA economic growth.

Australian shares are likely to open flat, despite Wall Street hitting record highs on strong expectations the US Federal Reserve will cut interest rates for the first time in a decade.

"Looking at the Treasury market before and after the release of Chair Powell's prepared Testimony, markets appear to have been expecting him to offer a bit of resistance to the idea that a rate cut at the end of this month is a done deal", said Ian Shepherdson, the chief economist at Pantheon Macroeconomics.

"Based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the USA economic outlook".

"Apparent progress on trade turned to greater uncertainty, and our contacts in business and agriculture reported heightened concerns over trade developments", Powell said, noting that business investment, an important component of economic growth, "seems to have slowed notably" in the last few months.

Overall growth has also "moderated", the Fed chief said, while "there is a risk that weak inflation will be even more persistent than we now anticipate", and not prove as transitory as Fed officials have often insisted.

"What would you do if the president calls you and said, "I'm firing you". The Federal Reserve has apparently created a working group to track the development of the cryptocurrency, and is working with central banks in other nations as well. "So they figure keep trying this until something happens".

Futures are still fully priced for a 25-basis-point cut at the Fed's July 30-31 meeting, but have abandoned wagers on a half-point move.

Powell presented his remarks and then took questions from members of the US House of Representatives Committee on Financial Services.

President Trump has repeatedly argued that the USA economy would be growing faster if the Fed lowered interest rates.

Stocks briefly added to gains following minutes from the last meeting of Fed policymakers that showed many USA central bank officials thought more stimulus would be needed soon if risks to the economy did not let up.

Powell will nearly certainly face questions about Fed independence, given that the bank has relatively quickly - if begrudgingly - shifted its stance to align with Trump's demands for reduced interest rates.

"We have seen in the last while, in the local stocks in particular banks, retailers, and some selected industrials under pressure and so we are seeing a bit of recovery now on the back of [Fed rate cut commentary]", said Ferdi Heyneke, Afrifocus Securities portfolio manager.

"Uncertainties about the outlook have increased in recent months", he wrote. However, he is likely to keep silent on how deep the rate cut might be.

A wild card in the Fed's decision-making has been Trump's highly unusual public pressure on the central bank to cut rates sharply.

However, strong data on Friday all but ended expectations of a bold interest rate cut from the Fed at its meeting this month, leaving investors in search of hints on where rates are headed. Rates remained close to zero for years.

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