Investors waited for a speech from Fed Chairman Powell after the U.S. President Trump called for the introduction of negative interest rates.
Although some U.S. policymakers have spoken against negative interest rates, two-year U.S. Treasury yields fell to a record low of 0.105% last week. Also the 2021 Fed fund futures contracts are skirting negative territory.
Trump on Tuesday called for his country to “accept the gift” of negative rates – as data showed that U.S. consumer prices dropped 0.8% in April. This was the largest decline since December 2008 when the economy was in the throes of a recession. A series of negative data fuels the debate over the policy response.
Until now, Fed officials have said they do not see a need to cut interest rates below zero and some market players expect Powell to stick to that script.
Further, warnings from Fed Chairman that the U.S. faces a “significantly worse” recession than any since WWII weighed on investor sentiment.
Britain on Tuesday extended its job retention scheme by another four months until the end of October. Under the scheme the government pays 80% of furloughed workers’ wages. But analysts estimate it will cost the government billions to fund this scheme, which will then likely lead to higher debt and taxes.
START TRADINGForex – Negative interest rates in dispute
Powell is due to speak on a webcast hosted by the Peterson Institute for International Economics at 9 a.m. (1300 GMT).
The US dollar steadied below a three-week high as Fed’s Powell seen wading into negative rates debate. Against a basket of rivals, the dollar index was flat at 100.02, hovering below the three-week high of 100.44 hit on Tuesday. The greenback has gained more than 5% from an early March low of 94.63.
The Canadian dollar strengthened against its U.S. counterpart rebounding from a near one-week low earlier in the session. Investors turned more bullish ahead of comments by U.S. Federal Reserve Chairman Jerome Powell.
The loonie was trading 0.3% higher at 1.4026 to the greenback, or 71.30 U.S. cents.
The New Zealand dollar slumped 0.9% to $0.6018 against the U.S. dollar after the central bank expanded asset purchase to NZ$60 billion from NZ$33 billion. Further, its policy minutes said that negative interest rates were a future option.
The euro edged down 0.1% to $1.0840 against the dollar after euro zone industrial production suffered its steepest monthly fall on record in March. The coronavirus containment measures hit activity severely.
Elsewhere,the British pound trimmed earlier gains to $1.2273. Bond yields fell after data showed the economy contracted by a record 5.8% in March even though household consumption dropped less than feared.
Oil markets regained some ground on expectations of deeper production cuts. U.S. crude was up 0.58% at $25.93 per barrel and Brent was at $30.01, up 0.1% on the day.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, Investing, CNN money