Will a FRB official’s remarks reveal the future direction of the U.S. dollar?! ～Key points and schedule for the week of February 18～
The recent market environment has no currencies that can be actively bought, so the U.S. dollar is being bought as a necessity.
Additionally, in a risk-off scenario, currencies such as the Swiss franc and the yen are being bought depending on the moment, resulting in a lack of clear direction.
This week, perhaps… there is an event that could determine the direction of the U.S. dollar.
◎ Points of Focus This Week
1) U.S.-China Trade Talks
Last week, no agreement was reached at the ministerial-level trade talks. While there has been some progress between the U.S. and China, consensus has been elusive. The deadline is less than 10 days away. Some reports mentioned considering a 60-day grace period before imposing additional tariffs. However, there is no confirmed official report. If no agreement is reached by March 1, tariffs on $25 billion of goods will be imposed.
The impact of tariffs on China will not only affect China but also the United States itself. Items protected by tariffs may be fine, but imports from China will become more expensive. This increases costs (raw materials) and squeezes profits. Additionally, a slowdown in China’s economy will affect Oceania currencies. If additional tariffs on China are imposed, the impact could be large, leading to risk-off and a stronger yen and franc.
Both sides have said they will continue negotiations until the March 1 deadline or until an agreement is reached, so attention is on statements from key figures about whether a deal will be reached.
2) Statements by Key Figures
This week has many economic indicators, but there are also many key figure statements planned.
Among them, attention is likely on the Federal Reserve. At the latest FOMC, a pause in rate hikes and in the shrinking of the balance sheet was hinted. It is important to see what remarks will be made about the timing of restarting rate hikes and the pace of balance-sheet reduction.
According to Nishihara’s information, a debate with the Fed Vice Chair is scheduled for the night of the 22nd. The topics include: “Public discussion of U.S. monetary policy in 2019,” “FRB’s monetary policy, strategy,” “means, and market dialogue,” “the future of the Fed’s balance sheet (B/S),” and so on, which will clearly attract market attention.
3) State of Emergency Declaration and the Mexico Border Wall
To avoid a government shutdown, President Trump agreed to a budget bill. However, he remains committed to the construction of the border wall with Mexico and plans to use a national emergency declaration, which does not require Congress approval, to secure funds for the wall under presidential authority.
Personally, I expected risk-on as the government shutdown was avoided and the budget was approved before the U.S. debt obligation dates, but concerns over the border wall have outweighed that, signaling risk-off sentiment. This week, I will be watching for potential opposition from Congress (legal action or impeachment) and also how Mexico responds.
4) The Bomb in the Euro Area
With Italy’s budget issue at the end of last year, France’s Yellow Vest protests, Spain’s budget rejection, possible dissolution of the Spanish Parliament, and recession concerns across Europe, there are many explosive issues. Recently, news that the ECB might consider a policy accommodation (TLTRO) has driven the euro lower. Will this policy actually be implemented, and for what purpose? The details may become clear in this week’s ECB meeting minutes. Also, I will be watching for key figures’ statements.
5) Brexit
With the Brexit deadline approaching moment by moment, last week’s UK Parliament vote resulted in a complete rejection, and progress has stalled. There are rumors that Prime Minister May may disappear from Parliament after the vote… Is she at her wits’ end?
This UK Parliament vote is likely negative for the UK’s negotiations with the EU. The previous Parliament approved the deal that allowed negotiation with the EU, but the current rejection makes it harder for May to negotiate with the EU while Parliament remains divided. The EU side continues to say it will not renegotiate the withdrawal agreement agreed in November last year.
To help Parliament reach consensus and avoid a no-deal Brexit, the EU has proposed delaying the Brexit deadline. The UK, however, insists that Brexit should occur on March 29 and does not want a delay. They also want further modifications to the withdrawal agreement. It will be interesting to see how negotiations progress after this week’s vote.
The next UK Parliament vote is scheduled for the 27th.
◎ This Week’s Key Events
February 18 (Monday)
Canada and the United States holiday
09:01 GBP Light Movement in UK House Price Index
February 19 (Tuesday)
09:30 AUDRBA Monetary Policy Meeting Minutes
17:30 SEK Sweden CPI (Consumer Price Index)
18:30 GBPAverage Earnings and Employment Change and Unemployment Rate
19:15 EURDe Guindos ECB Vice President Speech
22:50 USD Mester, President of the Cleveland Federal Reserve, Speech
23:30 EUR Costa, President of the Portuguese Central Bank, Speech
February 20 (Wednesday)
00:00 EURPlante ECB Governing Council Member Speech
06:45 NZD Producer Price Index
February 21 (Thursday)
00:00 EUR Euro Area Consumer Confidence Index
03:30 USDBrainard, President, Federal Reserve Bank of St. Louis, Speech
04:00 USDFOMC Minutes Release
09:30 AUDEmployment Change and Unemployment Rate
16:00 EUR Germany HICP (Consumer Price Index)
16:45 EUR France HICP (Consumer Price Index)
17:15 EUR France Manufacturing, Services, and Composite PMI
17:30 EUR Germany Manufacturing, Services, and Composite PMI
18:00 EUR Euro Area Manufacturing, Services, and Composite PMI
19:00 EUR Italy HICP (Consumer Price Index)
21:30 EURECB Governing Council Minutes
21:50 USD Bullish Atlanta Fed President Speech
22:30 USD Durable Goods Orders and Philadelphia Fed Manufacturing Index
23:45 USD Manufacturing, Services, and Composite PMI
February 22 (Friday)
01:00 USD Crude Oil Inventories
02:35 CADPoloz, BOC Governor Speech
07:30 AUDLow, Governor of RBA Speech
16:00 EUR Germany GDP
19:00 EUR CPI (Consumer Price Index)
22:30 CAD Retail Sales
February 23 (Saturday)
00:15 USDWilliams, President of the New York Fed, Speech
00:30 EURDraghi, ECB President, Speech
02:00 USD Clarida, Vice Chair of the Federal Reserve, Speech “Public Discussion of U.S. Monetary Policy in 2019”
03:00 USD Baker Hughes Rig Count
03:30 USDBrattle, President of the St. Louis Fed, Speech (Panel Discussion)
03:30 USD Powell, President of the Federal Reserve Bank of Philadelphia, Speech (Panel Discussion)
03:35 USD Quarles, Vice Chair of the Fed, Speech “Public Discussion of U.S. Monetary Policy in 2019”
