James Chen

EUR/USD has been climbing from its post-Brexit lows for nearly the past month. Much of this rise has been attributed to weakness in the US dollar, as bets on a Fed rate hike this year have progressively diminished in recent weeks. Wednesday’s release of July’s FOMC minutes failed to help matters much for the US dollar, as the Fed was seen as sharply divided in opinion and unlikely as a whole to raise interest rates in the near future.

USD/JPY continued on Thursday to consolidate its recent losses and fluctuate in a tight range right around the key 100.00 psychological support level. Mixed signals from Wednesday’s release of July’s FOMC meeting minutes that highlighted a divided Fed have contributed to a rather indeterminate directional bias for the currency pair. Despite those mixed signals, however, markets have appeared to make the tentative conclusion that a Fed rate hike is not imminent and that this year may not see any Fed movement at all. This view has been manifested in the US dollar, which continues to fall, as gold remains supported and US equities trade near recent record highs.

At first glance, Wednesday’s release of minutes from July’s FOMC meeting appeared slightly hawkish and relatively more optimistic about the prospects of a Fed rate hike this year. The minutes stated that some Fed members “anticipated that economic conditions would soon warrant taking another step in removing policy accommodation.” This revelation gave some inkling that the Fed may at least be more divided when it comes to members’ opinions on near-term rate hikes, and perhaps not as dovish-leaning as it has been portrayed to be in the past few months. Also on the hawkish side was the assertion that “near-term risks to the economic outlook have diminished.”

Crude oil prices, including both the US West Texas Intermediate and international Brent crude benchmarks, continued to surge sharply on Tuesday, extending the recent two-week rebound and recovery. In the process of this rise, prices have also broken out further above the short-term downtrend that had been in place for more than two months, since the early June highs.

The US dollar dropped sharply overnight after a paper was released detailing San Francisco Fed President John Williams’ dovish-leaning assertions that appeared to oppose a near-term Fed rate hike. On Tuesday morning, however, New York Fed President William Dudley made seemingly conflicting assertions in a televised interview, stating that a rate hike at the Fed’s next policy meeting in September “is possible.” Dudley went on further to state his opinion that the US economy is in “OK shape” and that inflation is “drifting up a little bit.” Dudley’s comments led to a partial rebound for the dollar.

Preliminary Japanese GDP data (q/q) for the second quarter was released prior to Monday’s Asian trading session, and the results were a significant disappointment. Gross domestic product for the April-to-June period was reportedly flat against prior consensus expectations of a 0.2% increase. This weak economic data could likely help pressure Prime Minister Shinzo Abe’s government and the Bank of Japan to find additional ways to stimulate the Japanese economy.

The Bank of England’s interest rate cut to a new record low of 0.25%, and other stimulus measures implemented by the UK central bank last week in response to June’s Brexit decision, prompted even more pressure on sterling than had already plagued the struggling currency.

USD/CAD dropped to a major support level around the psychologically significant 1.3000 level on Thursday as the US dollar remained stagnant and crude oil made a strong rebound, boosting the oil-linked Canadian dollar.

Despite the fact that the Reserve Bank of Australia (RBA) lowered its cash rate by 25 basis points last week to a new record low of 1.50%, as was widely expected, the Australian dollar has continued to show persistent strength within a sharp uptrend that has been in place since late May.

The US dollar remained buoyant on Monday, extending its climb from late last week after a significantly better-than-expected US employment report boosted both the dollar and the possibility of a Fed rate hike this year.

The US non-farm payrolls (NFP) data released on Friday morning showed another big beat for July following June’s stellar outcome. 255,000 jobs were added in July against prior consensus expectations of 180,000. Average hourly earnings were also better than expected, rising by 0.3% versus the previous 0.2% forecast. The unemployment rate remained steady from last month at 4.9%, falling slightly short of the 4.8% forecast. Further, June’s already-buoyant 287,000 figure was revised even higher to 292,000, and May’s painfully disappointing 11,000 was re-revised up to 24,000.

The past two Non-Farm Payrolls (NFP) employment reports both showed exceedingly large deviations from prior consensus forecasts – but in opposite directions. May’s data, released in early June, showed a colossally disappointing 38,000 jobs added in May against prior expectations of 160,000. This was later revised even further down to a minuscule 11,000 jobs added. In sharp contrast, June’s numbers, released early last month, revealed an exceptionally positive 287,000 additional jobs versus prior expectations of 175,000.