Today we do not expect any significant events on the financial markets. As a result, investors are looking at politics and central bank statements for market guidance.
Yesterday, Federal Reserve Chief Jerome Powell spoke about the central bank’s plan to support the economy. Despite the fact that the United States has the strongest economy in the world, the trade war with China has been pressuring it, and the stock markets have been particularly hard-pressed. Powell announced that the Fed will start buying short-term assets soon as a way to increase market liquidity.
In addition, Powell also said that another interest rate decrease this year is not impossible. As long as the market requires it, the Federal Reserve will react appropriately. Soon after the statement, the American dollar softened against other currencies. The dollar index dropped to 98.68.
The US economy is likely to need more support in the future because a resolution to the trade war with China remains unlikely. Even as the two countries are preparing to restart their negotiations tomorrow, Trump’s administration added multiple Chinese companies to its Entity List, which will likely upset the Chinese delegation and strain the talks.
In other news, Brexit talks appear to be failing. Reportedly, Boris Johnson had a difficult call with Angela Merkel yesterday, where the German Chancellor personally dismissed Johnson’s proposal for a deal. EU leaders have been vocal about the fact that Johnson’s proposal does not properly address the issue of Ireland and how to prevent a hard border on the island.
Meanwhile, the Prime Minister stated in a letter that he will comply with the Benn act and ask for an extension if he fails to secure a deal by October 19. However, he is also running ads in the UK telling businesses to prepare for a no-deal exit. Johnson also told the EU President that the UK will leave on October 31. Because the UK Prime Minister is sending such mixed signals, the markets are struggling to fully price in all of the risks for the pound.
