By Han Tan, Market Analyst at FXTM
Asian markets are pushing moderately higher Tuesday after the S&P closed unchanged, as investors are being fed more woeful signs about the global economy. Germany’s September manufacturing PMI fell further into contraction territory, France’s industrial sector recorded scant expansion during the same month, while Japan’s latest manufacturing gauge fell deeper into contraction territory.
The world’s economic growth momentum has stammered amid heightened trade tensions, prompting investors to keep safe haven assets at elevated levels. Gold remains near its two-week high and is trading above $1520, the Japanese Yen has strengthened and is now trading around the key 107.5 level versus the US Dollar, while yields on 10-year Treasuries are testing the 1.70 support level.
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Any further spike in geopolitical or trade tensions, along with this rapid deterioration in the global economy’s projected path forward, is expected to return safe haven assets to their 2019 highs.
Euro below 1.10 vs. Dollar
The Euro is holding below the psychological 1.10 level versus the US Dollar Tuesday morning, following the dismal PMI figures out of Germany and France. With EURUSD having fallen by more than 4% so far in 2019, there’s little reason to think that the single currency will see a rebound anytime soon.
Even with the support measures recently rolled out by the European Central Bank, as well as the limited fiscal stimulus in Germany, investors are not entirely convinced that this will be enough to offset the challenges that are affecting the EU economy.
Until a meaningful resolution to both US-China trade tensions and the Brexit impasse is reached, the EU economy is expected to remain mired in its current dismal state. Such a dreary economic outlook will only serve to keep the Euro capped around the 1.10 mark.
Dollar steadfast despite expectations for one more Fed rate cut
The Dollar Index (DXY) is still trading above 98.6, even as Federal Reserve Bank of St. Louis President James Bullard continues to telegraph the potential need for more “insurance” interest rate cuts. The Fed Funds Futures currently price in one more 25-basis point cut in October, before leaving the benchmark interest rate unchanged until January.
Despite the dovish bias shown by the Federal Reserve, the Dollar remains buoyed by the US economy’s outperformance in relation to its peers. The Greenback’s safe haven status is fueling its resilience, amid the swirling concerns over the deteriorating state of the global economy.
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