investingLive Americas FX news wrap 19 Aug: USD moves higher despite lower yields/stocks | investingLive

The USD close mostly higher versus the major currencies. The one exception was a modest decline versus the JPY. Looking at the percentage changes of the US dollar shows:

EUR +0.13%
JPY -0.15%
GBP +0.11%
CHF +0.05%
CAD +0.46%
AUD +0.59%
NZD +0.47%

The NZD was one of the weakest ahead of the expected interest rate cut by the Reserve Bank of New Zealand. The CAD was also weaker after Canada’s July CPI rose 0.3% MoM (in line with estimates) while the YoY rate slowed to 1.7% (vs. 1.8% expected, 1.9% prior), showing a softer inflation profile. The Bank of Canada’s core measures were steady to slightly lower, with median at 3.1%, trim at 3.0%, and common at 2.6%. Gasoline prices fell 16.1% YoY, shelter costs climbed 3.0% (driven by rent +5.1%), and grocery prices accelerated to +3.4% YoY, led by spikes in coffee, confectionery, and fruit. Regionally, Newfoundland & Labrador saw the sharpest acceleration, boosted by electricity costs. The softer CPI has pushed USDCAD higher.

US July housing data was mixed with housing starts jumping to 1.428m (vs. 1.290m expected, 1.358m prior revised), showing stronger-than-expected construction activity. Building permits, meanwhile, came in softer at 1.354m (vs. 1.386m expected, 1.393m prior). While the data adds to a string of stronger U.S. releases, it is unlikely to shift near-term focus away from NFP and CPI. However, the resilience in housing suggests that if the Fed cuts rates too soon, it risks fueling additional economic strength and sustaining inflationary pressures.

In geopolitical news, Trump said that Europe is eager to end the war between Ukraine and Russia, noting that France, Germany, and the UK even want boots on the ground in Ukraine. He emphasized that while the U.S. will not put troops on the ground, Washington is helping to set up a meeting between Putin and Zelensky. Trump added that the relationship with Putin only matters if it leads to results, and that Zelensky must also show flexibility, including the possibility of giving up territory. He reiterated that Ukraine should not be in NATO and will not be part of NATO, but said some form of security assurances could be offered outside of NATO. He observed that Putin and Zelensky are “getting along a little bit better,” though it’s possible Putin may not want to strike a deal—something that will become clearer in the next couple of weeks. Trump also stressed that Russia is a powerful military nation, and maintained that having a warm relationship with Putin is a good thing.

Geopolitical risk remains high – Trump’s suggestion that Ukraine may need to give up territory and won’t join NATO signals potential fractures in Western unity, raising uncertainty over the war’s outcome.
Security guarantees unclear – While Trump floated “some form of security” for Ukraine outside NATO, the vagueness adds to uncertainty, especially for European allies who want firmer commitments.
Europe vs. U.S. tension – With France, Germany, and the UK reportedly open to sending troops, but the U.S. firmly ruling it out, divisions could emerge within the Western alliance.
Russia leverage reinforced – Trump’s acknowledgment of Russia as a “powerful military nation” and his framing of a warm relationship with Putin as “a good thing” could embolden Moscow, impacting both negotiations and market perceptions of risk.
Market angle – Heightened geopolitical uncertainty could support safe-haven flows into USD, CHF, JPY, and gold, while weighing on European assets given the direct regional exposure.

Treasury Secretary Scott Bessent spoke on business news this morning said he believes a meeting between Putin and Zelensky is likely, noting that both sides seem ready to bring the conflict to an end. He described Monday as an optimistic and positive day. On policy matters, Bessent confirmed plans to raise tariffs on India over its purchases of Russian oil and said the U.S. is pushing back globally against digital services taxes. He added that Nvidia will now need a license for any new chip sales to China, signaling tighter export controls. Bessent also mentioned that meetings with Federal Reserve candidates are scheduled for right before and right after Labor Day. On the economy, he noted that much of the recent increase in PPI inflation came from investment services implying that the rise in the US stocks increased the PPI.

As mentioned, the new trading day, the Reserve Bank of New Zealand is widely expected to cut its official cash rate by 25 basis points to 3.0%, with 28 of 30 economists in a Reuters poll forecasting the move. The decision comes as annual inflation slowed to 2.7% in the June quarter, within the RBNZ’s target range, while unemployment rose to 5.2%, the highest since late 2020. Economists view the cut as part of the final phase of the easing cycle, with forecasts pointing to an additional reduction to 2.75% in early 2026. Markets have already priced in the move, so attention will shift to the RBNZ’s tone and forward guidance, which will determine whether policy easing stalls here or if further cuts remain on the table amid concerns over tariffs, inflation, and jobs.

Tomorrow, the Federal Reserve will announce or meeting minutes from the July meeting. Two members of the FOMC voted for an interest rate cut. On Friday, Fed chair Powell will speak at the Jackson Hole Summit

US stocks saw the growth and momentum stocks move sharply to the downside.:

Dow industrial average rose 0.02%
S&P index fell -0.59%
NASDAQ index fell -1.46%.
Russell 2000 fell -0.78%.

So the rotation out of stocks headed overseas to Europe where the major indices closed higher with France closing at a new record. Spain and Italy closed at their highest levels in 17/18 years.

In the US debt market, yields move lower despite the dollars rise: