Forexlive Americas FX news wrap: Fed's Powell (and other officials) help send the dollar lower

Author: Greg Michalowski | Category: News

Forex news for NY trading on August 24, 2018.

In other markets:

  • Spot gold is trading up $20 on the day or +1.70% at $1205.72. The high reached $1208.82. The low $1183. The lower dollar and a more bullish technical bias helped to push the precious metal higher. CLICK HERE. 
  • WTI crude oil futures are trading up $0.74  or 1.08% at $68.56.  The high reached $69.31. The low extended to $67.78. The price is closing the week right near the 100 day MA at $68.52. CLICK HERE
Stocks in the US ended the day with decent gains. The Nasdaq led the way for the day and the week.  The Nasdaq closed the week at a new all time record close of 7945.97.  The S&P index also closed at a record level of 2874.69.  

The European major indices also rose today.  Below are the high/low ranges and closes for the major European and NA indices. 

For the trading week, the Shanghai composite was the strongest - rising by 2.27% . The Spanish Ibex rose the most in Europe at up 1.91%. The Nasdaq was the strongest in the US at 1.66%.

The only major index that fell was in Australia as a China trade spat and the political upheaval sent investors to the sell side.

In the US debt market today, the US yields were mixed. The 2 year was higher. The 5 year was near unchanged. The 10 and 30 year yields fell.

The 2-10s spread continued to contract toward inversion. The spread is just below 20 bps now (at 19.32 bps).  

Some Fed officials - like Bullard and Bostic - expressed concerns about the flatness. Bullard said today he does not think it appropriate for the fed to tighten into a flat yield curve. 

Below is snap shot of the yields near the week's end. 

Fundamentally today, 

US Durable goods were lower than expectations at -1.7% vs -1.0% estimate.   Most of the weakness was in the transportation (-5.3%) and defense which are traditionally volatile. Ex trans was up 0.2% but that was lower than the 0.5% estimate.    A bright spot was that business investment does not seem to be rattled by tariffs.  New orders of capital goods excluding air grew at the fastest 12 month pace since 2011.  CLICK HERE for the reports. The Durable goods data will be revised in the new month when Factory Orders are released (in about 10-12 days) 

The other big event was the comments from Fed officials from the annual Jackson Hole Conference.

Fed's Bullard - a perennial dove but non voting member - was true to his bias. He did focus on the yield curve saying that the Fed should not knowingly invert the yield curve. 

Other comments included:

  • There is no need to take on the yield curve
  • The Fed needs to be very careful
  • Market outlook is flattening the yield curve
  • US economy is having a good year
  • But things may slow in 2019, 2020
  • Sees long-term potential growth around 2%
  • Can adjust policy if growth is faster than expected
  • Sluggish productivity is hampering wage growth
  • Does not see much inflation pressure in the US
  • Fed is focused on its legal mandate from Congress (a jab at Trump)
  • The market is more dovish than the Fed
Clearly his comments are down the line dovish.

Fed's Mester was more in line with the FOMC concensus. She did say that she has boosted her growth forecast to 3% for the year and that a gradual path of monetary policy seems to be the right one to follow.  She added:

  • We don't see excesses
  • Fiscal policy could be an upside risk to the forecast
  • Says it's hard to pre-judge whether Fed funds needs to go over neutral rate, which she sees at 3%
  • Firms concerned about tariffs but haven't responded much

Finally, the Feds Chair Powell spoke.  He was a bit dovish.  The lines on the conditions for the hikes are a bit soft. Specifically, the headlines said:

  • There doesn't seem to be elevated risk of overheating
  • Sees good reason to expect strong economy to continue
  • There is no clear sign inflation accelerating above the Fed's target
  • Gradual rate hikes navigate risks of going too slowly or too fast
  • There does not seem to be elevated risk of overheating
  • Most who want a job can find one
  • He's confident Fed would do whatever it takes should inflation expectations shift
Click here for a look as the full text

The combination of the durable goods and the Fed comments helped to send the dollar lower. It was the weakest of the majors today. The AUD was the strongest - recovering from the sharp fall yesterday. . 

 That'll do it for the week. 

Thanking you all for your support and wishing you all a great and safe weekend.  

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