Richard Franulovich, head of FX strategy at Westpac, suggests that the Trump-Xi trade war truce has done little to arrest anxiety but fresh duties on $5bn in European imports (Airbus-related) underscore there’s no practical end in sight for Trump’s trade war either.
“Yet Mester, Kaplan, Barkin and Daly have said it’s too soon to make a judgment on rate cuts, though admittedly none are 2019 voters. But even Bullard has pushed back against a 50bp rate cut and Powell noted that while they will “act as appropriate” there are risks with overreacting. If the Fed is minded to keep rates on hold in July, the window for a strong signal is shrinking (blackout period starts July 20), lest markets read silence as a nod to pricing.”
“We are not inclined to chase the USD much from current levels; key supports reside nearby around 95.0-95.5 and the Fed is unlikely to deliver on 100bp in cuts priced for the next year.”
“A July cut would not materially alter that picture; it is likely to be sold as an insurance move that restores a more even balance to the risks.”