The Western press was quick to conclude that Friday’s summit between US President Donald Trump and Russian President Vladimir Putin was a failure in that Trump had been dragged down an off-ramp away from a ceasefire and renewed Russian sanctions. Financial markets are taking a less critical view, however. EUR/CHF has largely held onto the gains made late last week, CEE currencies are looking to stay bid, and oil and gas prices are staying offered. European and US equity futures are trading modestly in positive territory after a good night for Asian equities, ING’s FX analyst Chris Turner notes.
“We’re no geopolitical experts, but if there was one positive piece of news to be taken from this weekend’s events, it was the remarks made by US special envoy Steve Witkoff that Russia would accept a NATO-like US security guarantee for Ukraine. Ukraine and Europe have made security guarantees central to any path toward peace. Any further clarification of this situation today could be welcomed by markets, even though the issue of territory seems intractable.”
“This is all happening amidst a benign global backdrop in financial markets. Confidence that the Federal Reserve is ready to cut two or three times this year sees investors happy to remain long risk assets. Volatility is low across asset classes, credit spreads remain tight, and emerging markets are in demand. Without much fanfare, Chinese benchmark equity markets are pushing up to the highest levels in a decade as investors seem happy to look through the impact of tariffs and welcome the prospect of stronger domestic demand in the Rest of the World. This is a negative backdrop for the dollar, and we expect it to remain gently offered this week. Away from geopolitics, the data calendar is relatively light, but there will be much focus on Fed policy. Wednesday sees the release of the minutes of the July FOMC meeting, where two dissented for a 25bp rate cut.”
“Of greater interest, however, will be Chair Jerome Powell’s speech at the Jackson Hole symposium this Friday afternoon. It may be too early for Powell to all but confirm a Fed rate cut in September. Yet when the facts of a ‘solid’ labour market change, Powell will have to acknowledge it. There are a few other Fed speakers before Friday, but Christopher Waller’s speech on Wednesday looks to be on the payments system at a blockchain conference rather than the economic outlook. With risk assets bid and energy prices offered, we expect the dollar to stay under a little pressure as dollar-based investors continue to put money to work. DXY to trade offered in narrow ranges, before potentially breaking down below 97.00/97.10 on Friday.”
