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Dollar drops before Fed chief speech

LONDON (AFP/APP): The dollar slid versus the euro Friday while stock markets mostly rose before a key speech by the head of the Federal Reserve.

Australia’s dollar meanwhile pared losses and Sydney’s stock market closely slightly higher after the country’s governing Liberal Party elected a new business-friendly prime minister, ending a week of political uncertainty.

Elsewhere, markets reacted also to the end of two days of talks between Beijing and Washington that the Chinese side described as “constructive and frank” discussions on trade.

“The key highlight today will be Fed Chair Jerome Powell’s speech,” said Jasper Lawler, head of research at London Capital Group, adding that investors would “closely scrutinise” where he stands on the pace of future US interest rate hikes.

“Powell’s speech could also contain fresh hints as to how the Fed view the escalating trade tensions,” he added.

Powell was set to talk at the annual Jackson Hole symposium of central bankers, in sharp focus after US President Donald Trump’s criticism this week of the Fed’s recent interest rate hikes and accusations it was not backing his economic agenda.

The comments, which also saw the president refuse to explicitly back the Fed’s independence, has dented the dollar in recent days, handing a boost to oil which is priced in the US currency.

“Any (Powell) comments on current Fed policy will draw even more than the usual attention given recent and unprecedented criticism of the Fed by President Trump,” Larry Hatheway, chief economist at GAM Investments, told Bloomberg News.

“While Powell prefers to speak plainly and in non-technical terms, he may find reason to take a more guarded approach in order to avoid the appearance of open conflict with the administration.”

Powell may also comment on trade following the end of the low-level US-China negotiations — the first talks between the sides since the world’s top economies began in July imposing tit-for-tat tariffs on billions of dollars more in goods.

Earlier Friday, Sydney’s under-pressure S&P/ASX 200 fluctuated through the day and ended up 0.1 percent after the Liberals elected Scott Morrison as prime minister.

The former treasurer took the reins after beating hardliner Peter Dutton, who had moved to replace Malcolm Turnbull in a shock revolt earlier this week that sent Australian markets spinning.

In Europe meanwhile, official data showed that the continent’s powerhouse economy Germany notched up a record government budget surplus in the first half of 2018 as well as rebounding to stronger growth in the second quarter.

 

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