Morning Commentary:Not Thinking About Thinking

Foreign Exchange - Morning Commentary
Not Thinking About Thinking
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David Atkinson
David Atkinson
Foreign Exchange Sales Manager
This is how Fed Chair Jay Powell put it yesterday at the Fed’s post-FOMC press conference regarding the committee’s attitude on raising interest rates:  it ain’t happening anytime soon.  In fact, the dot plot consensus has rates on the floor through 2022.  So much for anyone looking to put savings to work.

The Fed will also continue to employ its programs to support the economy, which it sees as struggling for a long time.  The Fed started out the year thinking that GDP would be at +2.0% for Q4 of this year.  Now it expects a drop of -6.5%.  It expects a rebound of 5.0% in 2021 and further growth of 3.5% in 2022, but by the time we get there, the Fed projects that the US economy will be only +1.6% above pre-virus level.  In addition, unemployment is expected to still be in the 5.5% range by the end of 2022.

This is in line with what we discussed yesterday regarding the ECB’s forecast of a -8.7% plunge in Eurozone GDP for this year, followed by a recovery of +5.2% next year and +3.3% in 2022.  The OECD expects a global GDP drop of -6.0% this year, which could be worse if Covid comes back with a vengeance.

Bizarrely enough, the bad news for the US, though widely expected, gave a boost to the US dollar 1-2% against many counterparts, with the Japanese yen and Swiss franc notable exceptions.  These currencies are safe havens like the USD and tend to do well is risk-off environments.

Initial jobless claims came in today at 1.54 million, in line with expectations but reminding us that horrifying economic data almost feels numb to us by now after being punched in the gut enough times.  There was a little inflation in PPI – a +0.4% rise versus the +0.1% expected, which is actually a good thing in that it indicates at least some life in the economy at the producer level.  We’ll see if this makes it through to the consumer level.

Tomorrow’s Global Perspectives video will flesh out the US dollar dynamics a bit more in the context of world trade, and how this bleeds over into economic class and inequality. 
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