Easy Money Policy, EURUSD Forecast, Risk Assets – Coming up in our podcast this time:
- Should we expect further easy money policy from the Federal Reserve?
- EURUSD forecast: will the Dollar be favored?
- Why AUD and CAD may be worthy risk assets
“A big fear for the ECB is manufacturing weakness spreading to the service side”
This time on Trading Global Markets Decoded, our host Martin Essex is joined by Philip Tyson, Managing Director of Market Strategy at Medley Global Advisors. The big questions: Should we expect more easy money policy from the Fed? What’s the latest EURUSD forecast? And are CAD and AUD good risk-on assets to explore? You can listen to this podcast with Philip Tyson by clicking on the link above or one of the alternative platforms listed below.
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Further easy policy from the Fed?
Talk kicks off with the Fed: Should we expect further easy policy later this year? “It’s quite possible they could cut by another 25 basis points to cushion trade concerns and external slowing elsewhere,” Philip says, adding that we could see a mid-cycle adjustment before the end of the year.
However, there is a dispersal of views on this matter. “Some see the economy not warranting further easing, others advocate a 50 basis point cut,” Philip says. “There’s no strong backing for substantial easing; much beyond another 25 [basis points] would require a real deterioration of the economy.”
The ECB has also, of course, eased policy. What now for Europe? “The market seems pessimistic,” Philip says. “A big fear for the ECB for a while has been that manufacturing weakness can spread to the service side, but the PMI data shows the service side is still holding up.”
And what is the outlook for government bond yields against this backdrop?
“We’ve had the US and China seeking to lower trade tensions and talks coming up next month which will be key for bonds. We’ve seen a rise in yields against this slightly more optimistic backdrop.”
Also, if China ramps up agricultural imports from the US, suggestions are that Trump may consider an interim agreement. Against this optimistic trade backdrop, there may be room for a modest upside in yields – but which may only be temporary.
“Our analysts maintain low expectations for the trade talks themselves and conditions deteriorate with each new tariff threat. There may be more upside for equities and bond yields but it may be followed by a downtrend persisting,” Philip says.
On EURUSD: “EUR will be fairly contained,” Philip believes. “There’s probably slight downside risk in favour of USD.
“If the US data remains resilient and the European side continues to struggle, and if expectations about the extent of Fed easing begin to get scaled back a bit it could be an environment that marginally favors the Dollar from here.”
AUD and CAD as risk assets
In the short term Philip says he is skewed towards a risk-on approach, citing the Australian Dollar as an interesting asset. “AUD is looking at an extended period of low rates,” he says. “There’s talk of a turnaround in housing, but really the overall message is they’re left with further room to cut if they need to.”
Could the Canadian Dollar be another viable choice? “The [Canadian central] bank is not in a rush to cut rates until it sees signs of economic deterioration, and if you look at all the data, across the activity side, that scenario really remains quite