US dollar fades on Fed comment, awaiting ECB impetus next week
By Arnaud Masset
Dovish testimony from US Federal Reserve Chairwoman Janet Yellen to the US Congress weakened the USD yesterday by as much as 0.80%, but the greenback recovered to 1.1440 per 1 Euro – a barrier we don’t believe will be breached until 20 July at earliest.
On that date, next Thursday, the European Central Bank’s Governing Council will meet in Frankfurt. If the ECB Council keeps on path to tighten supply, the Euro could appreciate sharply – potentially back to the levels of 2014, when it hit highs of 1.38 Euro per USD. However, we believe the ECB will moderate its hawkishness, because the Council still wants to stimulate inflation in the Eurozone.
Yellen’s testimony yesterday was a bit of a ‘nothing burger’, as the White House might put it. It brought no information to light that was not already priced in by market participants.
Renminbi upside looks good, as China trade beats expectations
By Yann Quelenn
At the 6.75 range, the USD/CNY has hit its lowest level so far in 2017, and our outlook is that it will keep falling. China’s export surplus balance is holding strong at +$42.4 billion, and its surplus to the USA grew $3 billion in June alone.
China has rebounded smartly since its 2015 ‘meltdown’, which saw stocks and currency values plunge. Imports are booming, climbing in June by 17.2% year on year, driven especially by commodities and iron ore that ends up in construction. Exports are also robust, rising 11.3% in annualized terms in June.
The economy has repowered from the slump, but it is different than was. Double-digit growth is now over. Service businesses are playing an ever stronger role alongside the ‘factory of the world’. And debt is increasing at a very strong pace.