Fed will most likely cut the interest rate for first time since 2008 financial crisis, because the economy seems fall into recession, the whole world is focus on Fed interest rate announcement. Will US dollar weaken if interest rate cuts?
US-China trade dispute, Chinese goods are subject to tariffs imposed by the US Government which directly affect China's GDP growth. It was resulting in a rapid economic slowdown in China, economic growth is expected to slow to near30-year low.
Australia is also slowing down due to slower economic growth and lower inflation. In addition to the slowdown of China’s economy, the largest trading partner, the demand for mineral resources in Australia has decreased. Moreover, the housing market continue to cool down, and housing prices have fallen. The Reserve Bank of Australia (RBA) has cut the official cash rate again as economic indicators like the unemployment level and wage growth still look weak. The interest rate drops to a new historical low of 1%, marking the first time since 2012 that the RBA has cut in two consecutive months.
The UK is facing the highest risk of recession since the financial crisis due to Brexit uncertainty and a global economic slowdown. Sterling has continue fallen to more than two-year lows against USD amid growing anxiety about no-deal Brexit. The British Pound break of 1.2200.
European Central Banks (ECB) will keep interest rate low, monetary policy continue quantitative easing (QE) to face the recession threat; for example, Germany manufacturing hits seven-year low, Brexit and Italy’s Debt crisis problem.
Japan is also affected by the US-China trade dispute, and GDP growth rate slowdown. Bank of Japan state that if the global economic growth pressure intensifies, they will ready to loosen easing policy further. However, the market and Bank of Japan seems have no limited for further easing, such as Australia, New Zealand, ECB and US are likely cut the interest rate this year. But Japan has already been in negative interest rate for a longtime, it is impossible and no space to reduce the interest compare to other countries. Market risk appetite transfers funds into the Japanese Yen to seek safe haven, so the Japanese Yen continues to strengthen against dollar.
The economic growth and currency trends of various countries are slowing down. The overall economic status of the US in the second half of 2019 will continue to maintain positive growth. The expansion will be milder, but the US employment data is strong, US stocks rose sharply, so even the US Federal Reserve interest rate cut in August will only have limited impact on the dollar.
The global funds are “profit-seeking”, and the spread is also a major driving factor for the US dollar index. The United States interest are favorable advantage compared not only Japan but also Euro Zone countries. The US dollar index will not be too weak in the case of quantitative easing and low-interest monetary policies in Europe and Japan.
China and US both sides are willing to continue negotiations and the support of the central bank's loose attitude, the US stock market and US bond market will be optimistic. On the other hand, if China and US stop negotiations and trade wars escalate, US bonds market will outperform the stock market, but these will not affect the dollar weakening.
The US dollar may remain strong relative to other currencies under the support of various factors; however, we still need to be caution of the market volatility and uncertainty.
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