The safe-haven Yen and Swiss Franc were under pressure earlier today on expectations that policymakers would unleash new stimulus to counteract the negative impact of a slowing global economy.
Over the weekend, the Chinese central bank announced a key interest rate reform aimed at lowering corporate borrowing costs, while Germany may be open to new fiscal stimulus measures to boost growth, even if it runs a fiscal deficit.
Hopes for stimulus to help Europe’s largest economy, which is on the brink of recession, also rose after Finance Minister Olaf Scholz suggested the government was ready to spend. Scholz said on Sunday, 18 August the global financial crisis in 2008 and 2009 cost Germany roughly €50 billion ($55.45 billion), but the country has the fiscal strength to spend a similar amount to counter any future economic crisis.
China and Germany are two major global exporters that play a crucial role in world trade, so any steps to bolster these two economies is a positive for the global economic outlook. However, investor optimism is likely to be contained as the US later today will decide whether or not to continue to allow China’s Huawei Technologies to buy supplies from American companies.
The news of stimulus measures is supporting the Dollar against safe-haven currencies, but that could end depending on the decision. The Dollar Index, measuring the greenback against six major currencies, was marginally higher in Asian trading at 98.201, close to a two-week high of 98.339 reached last Friday. The Yen and Swiss Franc fell slightly versus other currencies.
Risk sentiment could improve further if Washington offers concessions to Huawei, which could make a resolution of the US-Chinese trade war more likely.
The US Department of Commerce is expected to extend Huawei’s “temporary general licence” by 90 days allowing it to buy some US goods to be able to service its existing customers. However, President Donald Trump said yesterday he did not want the US to do business with Huawei for national security reasons, casting doubt over the decision.
The week ahead is light on data, but heavy on monetary policy decisions, with minutes from the Federal Reserve’s latest meeting due on Wednesday, 21 August and the Fed’s annual policy symposium at Jackson Hole scheduled from Thursday to Saturday.
Today the Eurozone will release its Consumer Price Index for July at 10:00 (GMT), providing the latest insight into inflation on the continent.
Positive US retail sales provide respite to Dollar
Global slowdown fuels recession concerns
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