The U.S. Dollar recovered overnight and improved this morning
following the release of better than expected Durable Goods Orders. Wednesday afternoon represented a
significant losing moment for the buck as it fell to its weakest value since
May of 2016 as measured by the Bloomberg Dollar Spot Index because of market
reaction to the Fed announcement.
Surprisingly, the FOMC statement, which had no press conference to
elaborate further, explained that members want to unwind the balance sheet soon
by selling bonds purchased during QE, but this did not boost the dollar. As expected, there was no hike, but
perhaps recent poor performance in indicators have convinced market
participants that nothing will happen until December.
There are concerns that the greenback is
weakening rapidly and it’s on pace to erasing all its gains since 2014, propelled
back when the Fed decided to start tapering its quantitative easing program. We
believe any buyers of currencies should take advantage any time a piece of data
aids the dollar since the 2014 momentum the dollar experienced is now on the
side of the Euro. We’ll see if tomorrow’s slated figures from GDP to
Personal Consumption help any further.
The Euro is now trading around its strongest levels since the start
of 2015 and could solidify its appreciating status if data out of the Euro-zone
on Friday delights spectators. CPI figures coming out of many places, including Germany, will be
closely watched as well as confidence measures for the whole bloc. Already Ifo
Business Climate surveys in Germany look great while unemployment in Spain fell
to its weakest level since the beginning of 2009. With the biggest of the
original P.I.G.S. on the rise, we can realistically expect any other stellar
data causing further appreciation of the shared currency.
The Pound was the exception in the dollar’s minor recovery, pushed
upward as a result of strong Retailing Reported Sales by the Confederation of
British Industry. Manufacturing
is lagging in the UK and GDP showed us there is a slowdown, but people are
buying things. In this strange imbalance, it is possible Sterling has room for
falling in value since the Bank of England meets next week and their
announcement may be characterized by concerns over Brexit effects, negative
ones, on the economy. Once it is established that the BOE cannot mess with
the accommodative environment while negotiations continues, the lack of interest-rate
hiking will likely sink the Pound. For now, the “quid” keeps hanging on.
The U.S. Dollar benefitted from good Consumer Confidence data,
which enabled it to hit the brakes on losing ground to its main counterparts. Thus far this year, the buck has lost
9.6% of its value based on doubts over the political distractions, success in
Europe, and dwindling fundamentals here.
However, the Fed has been a source of appreciation
and although today there is not even a press conference after the FOMC
announcement, the language within the statement could have a potentially
positive impact if it mentions willingness to unwinding the balance sheet.
Their hawkishness could surprise and add to chances of a move in September or
if doubt is cast, a push for December that could sink dollar a bit.
We shall see if Home Sales do anything
for the greenback as Construction figures have driven the currency higher
recently, even if not for an extended period of time. Oil prices keep rising
as curtail promises sound good to some futures-bulls, but some analysts predict
the lowest of prices are yet to come as they see no balance down the line for
the industry with other energy resources growing. Mexican Peso and Canadian
Dollar moves mostly muted thus far.
The Euro is stuck around its highest level in about two years after
Retail Sales grew in Spain and Consumer Confidence climbed in Italy. The fourth and third largest economies
of the Euro-bloc respectively are showing consistent improvements after years
of major struggle. Nevertheless, the fragile nature of current Italian politics
still leaves a lot to be desired since reforms that are considered key to
bettering banks and promote efficiency within government have not been pushed
through. Additionally, there are still forces interested in combating European
integration. For now, things are steady and we see room for Euro strengthening.
Only good figures here can start limiting the shared currency’s gains.
The Pound is surviving despite bad signs
of economic growth. The preliminary reading of Gross Domestic Product for
the second quarter of the year showed a measly uptick of 0.3% as expected,
signaling what some have feared: that indeed Brexit negotiations and the
anxiety over companies leaving are having a negative impact.
Furthermore, Brexit negotiations will
take the August summer break with major issues unresolved after two rounds of
talks that did not clarify the rights of EU citizens living within the UK or
the amounts to be paid by Britain to be divorced and free to dream of great
trade deals. We see Pound only staying around current ranges because of the
dollar’s own weakness, but any sign of optimism in the face of political
distractions here will eventually take a significant toll on Sterling when all
issues with Brexit considered.
The U.S. Dollar remains on its weakening trend ahead of today’s
vote on healthcare overhaul by the Senate and the currency is in the midst of
losses to political risk as well as economic performance divergence. Data recently has shown that American indicators
are meeting expectations, while overseas they hit record-highs as the European recovery
shows vast strength. The greenback is now trading near its worst level since
August of 2015 against the shared currency.
The tumultuous pressure on the dollar can only be eased if perhaps
there are signs of less gridlock in congress, but at this point that looks a
Fed-wise, we think discussions over winding down the balance sheet and
confidence over future gradual hikes could have an impact, but there is little
to stop the dollar’s bleeding.
Durable Goods and GDP at the end of the week will be crucial to set
a more positive tone if there is reason for it. Oil prices may be on the up and up after
news of deeper production cuts by Saudi Arabia, but MXN and CAD continue their
fortunes off of their non-energy sector.
The Euro keeps on climbing as now
confidence grows. The German IFO business climate survey improved to its
highest reading ever while in France their confidence gauge reached the best
level in six years. It seems like the bigger economies feel more than just
fine about progress being made, while the European Central Bank maintains a
strong economic outlook yet wants to contribute in steadying the flow of quantitative
easing. There is plenty to excuse the Euro’s momentum and dollar-bulls will
have to wait and see at what new high level there is profit-taking to see a
reversal in greenback losses.
The Pound is surviving in the face of complicated negotiations over
the best deal for Brexit as parties consider a transition period for trade and
then a full abandonment. Liam
Fox, a strong advocate for a hard Brexit admitted that it will be difficult to
have a trade deal with the EU set up prior to the Brexit 2019 deadline, which would
mean maintaining key trade terms for an undetermined period of time. It is
not clear what direction the talks will go, but the EU is determined to charge
a fee before the UK starts putting together their needs in the form of a new deal
The U.S. Dollar is trading in wild ranges
this morning as markets react to the European Central Bank’s decision to delay
any monetary policy tightening. Shockingly, the Euro is up as ECB President
Mario Draghi is explaining that QE will not be changed and that officials are
still committed to expanding and extending the program as needed, yet none of
this is having a negative effect.
In fact, he admits that inflation is
dragging, but feels very confident on the strength of the economic recovery. Basically,
it looks like Draghi and other members felt the fall will provide all the
necessary data and analysis that provide enough confidence to act on increasing
interest rates without jeopardizing the progress being made.
Overall though, the U.S. Dollar is faring
better across the board with positivity built from good housing numbers. The
greenback also was not affected tremendously by the Bank of Japan’s
announcement in which they upgraded their GDP forecasts, but lowered their
inflation expectations, again. It seems like tapering of easing measures
will happen everywhere, but in Japan.
The Euro is trading in wild ranges, swinging within a 75-point
range as markets gauge the ECB’s thinking. As expected, rates were not changed, but there
seems to be a counterintuitive correlation between the dovish tone of delaying
action and the Euro appreciation we are seeing. ECB’s Draghi sounds very cautious
Furthermore, he said that tighter
financing conditions are “the last thing” the ECB wants. As we interpret it,
the Euro deserves credit and its value reflects the lack of political calamity
that once seemed possible for the continent as well as the economic
strengthening that has spread beyond Germany. The ECB just wants to keep
enjoying the show and go on vacation.
The Pound weakened by over half a percent following a lack of
agreement on the amount the UK must pay the EU with a now very intense French
delegate’s demand that they pay big time. Prime Minister Theresa May is already under a lot
of pressure, but now she must explain to Parliament that the EU is serious
about payment of obligations before any trade deals is possible.
Bruno Le Maire, France’s Finance
Minister, even went as far as quoting former British Prime Minister Margaret Thatcher
in saying, “We want our money back.” The tensions play poorly for a Brexit
team struggling to have a cohesive message in the face of EU lawmakers ready to
make the divorce proceedings punitive.
The U.S. Dollar is fairing a bit better
against most of its major counterparts as market participants eagerly await the
European Central Bank meeting’s decision tomorrow, the main event before the
continent goes on holiday mode. A surprise in the Housing Starts and
Building Permits data from this morning are also aiding the dollar in its
minor, yet crucial recovery after falling dramatically yesterday and all
throughout July. Housing Starts grew by 8.3% over the expected 6.2% while
Building Permits rose by a stellar 7.4%, beating estimates of just 2.8%. The
strong expansions contrast with prior monthly contractions.
With markets relatively quiet and no
major data, we will once again look for headlines to see if they serve as a
driver for any type of movement. Although it didn’t affect the North American currencies
much, NAFTA revisions have been made to update certain industry guidelines and
show the U.S. wants to export more to cut the trade deficit. In oil news,
the glut continues and OPEC continues its struggle with pushing for production
cuts in the midst of an effort in China to curtail its use of fossil fuels.
The Euro stopped its winning streak after the U.S finally got a
glimpse of positive data in what has been a rough month for the buck. The ECB starts its meeting today and
there is speculation that officials are working on their options to start
shedding some of the quantitative easing in place. After some years of high unemployment,
little to no inflation and political risks, the Euro-bloc has recovered thanks
to the central bank’s efforts, but the economy is now ready to be relieved from
the bank’s intervention. The QE monthly injection of €60 billion is set to end
completely in December. We shall see if there is any mention of increasing interest
rates eventually, which could cause another Euro spike.
The Pound is starting to pivot downward following yesterday’s
release of underwhelming inflationary figures. The indicators, such as CPI, slowed down and
now the Bank of England does not feel the pressure to hike interest rates in
order to fend off the potential of prices going up too high. Now, it looks like
BOE Governor Mark Carney was right in stating that the inflationary build-up
has been the result of the rapid depreciation of the “quid” post-Brexit
referendum and that it should be overlooked for now. Brexit-wise, it seems like
meetings went well, with both parties discussing details in regards to
maintaining borders with Ireland as open as possible and making sure EU
citizens in the UK are valued.
The U.S. Dollar is down after last night’s public announcements by
two more senators who would not vote for the healthcare overhaul bill, essentially
killing the legislation. Consequently,
the greenback is down against every currency across the board with Pound being
the exception. The Euro climbed further against the dollar to a 14-month high.
Overall, this is not good for the dollar moving forward as gridlock in
Washington now casts further doubt on the administration’s ability to push its
economic agenda. Political instability is never positive for any nation’s
currency and we are no exception.
We are now facing
multiple negative factors for the dollar including dwindling economic indicators
that puts the Fed’s hike outlook into question. Without much in terms of
heavy data until next week, we foresee a struggling buck for the week and
majors may reach new best-of-year ranges against it.
The Euro reached its best levels in 14 months following news of the
healthcare bill failing to even come to the senate floor. Four senators from the Republican side
of the aisle are causing havoc for an administration eager for a legislative
win in order to propel other items, especially on the economic front. However,
the comparison between the Eurozone and the U.S. is starting to show some stark
differences with the supposed political risk that was to bring Euro down in
2017 already out of the equation after elections that united the pro-EU
The tables have turned. A more confident European Central Bank will meet on Thursday to
potentially improve the Euro’s fortunes with some optimistic, yet cautious,
analysis while odds of a rate increase in the U.S. are now below 50.0%. The
recipe is there for Euro appreciation and this latest development in the U.S.
has created new support and resistance levels.
The Pound fell as a result of slow inflationary growth as revealed
by consumer Price Index and Producer Price Index figures. CPI did not go up or down for the month
of June and now sits at 2.6% annual-growth for the year under the expected
2.9%. Additionally, PPI did not improve at all in June while lowering its
annual average pace to 3.3% under the estimated 3.4%.
Slowdown in the middle of negotiations
does not bode well for Sterling as the UK readies itself for further
concessions at the divorce proceedings with the EU. Domestically, the British
Brexit team is even being mocked by the public for seeming less prepared than
their EU counterparts at the meetings yesterday.
The U.S. Dollar is trading in mixed
ranges this morning following a tough end to last week in which economic
indicators signaled deficiencies and contractions in current consumption. As
a result, the Bloomberg Dollar Spot Index fell and now it’s 1.7% down for the
month. Traders are now reassessing the chances of the Fed hiking this year, which
now stand under 50.0% since no figure indicates that the economy is heating up
The lack of expansion in sales and long-term purchases cannot
continue if the Fed is to gradually increase borrowing costs. A survey shows Americans are optimistic
about the economy, but are frustrated with Washington, perhaps why future
investing is on hold.
The only counterpart the buck is
dominating at the moment is the Norwegian Krone, which is down bigly on news of
the worst inflation level in two years. The struggles for the Nordic
petro-currency make sense considering the awful time in oil markets. With
no major data, we will see if news headlines affect the flow of markets as
potential Russian meddling, Brexit talks, and North Korea continue to dominate
The Euro remains swimming around its best levels in over a year,
although momentum is stalled prior to the European Central Bank meeting on
are wondering if there will be plenty to say about open-ended sovereign bond
purchases, which could mean the central bank is not done maintaining some level
of intervention to keep an easing environment.
Thursday could indeed mark a turning
point for the currency if a hawkish ECB lead Euro to further merited long-term
appreciation as it becomes clear they intend on tightening, however, if there
is still talk of careful calculation and delayed action, Euro could decline
slightly. The differences in economic performance are what matter most now
and there is more doubt on our side of the Atlantic currently.
The Pound hit the brakes a bit, but is now close to its high for
the year considering the frustration with figures out of the U.S. The second round of Brexit talks goes on
this week where the UK hopes to soften the chances of a very high toll as it
pays its obligations for leaving the continental agreement.
The last two weeks have seen a UK Brexit team having to concede to
the EU lawmakers’ wishes for actual acknowledgement of a monetary penalty and
inclusion of EU citizens as well as their interests. Retail Sales and Consumer Price Index
numbers could swing Sterling one way or another as the currency is also
becoming sensitive to data points recently.
The U.S. Dollar is pivoting downward following the release of truly
disappointing inflation and retail sales data. Monthly Consumer Price Index figures
showed no expansion and the year-on-year CPI increased by 1.6% under the
estimated 1.7%, which suggests inflationary growth is not increasing near the
desired pace by the Fed of 2.0%. Furthermore, Retail Sales really surprised us
with contraction instead of any improvement, which economists expected. June’s
numbers were supposed to show 0.4% growth, but fell by (-0.1%). At the time
of writing, the Bloomberg Dollar Spot Index was headed towards a half percent
loss immediately after the indicators hit the wire.
Fed Head Janet Yellen’s testimony this
week to the congressional Housing Committee already casted doubt on the economy
and the Fed’s approach to future hikes, but these numbers certainly lower the
chances of a Fed rate increment by end of the year to just 43.9%. With
distractions in Washington as political infighting takes over headlines and the
economic reality of poor consumption, the greenback is starting to feel the
pressure and we see little chance of much recovery from current ranges in the
next few weeks.
The Euro is now up 1.1% for the month of July, slowly but surely
appreciating as a result of better economic performance and hopes of monetary
Today happens to be Bastille Day in France, so we may not get much in terms of
news out of the Old Continent. CPI numbers for Italy came out as predicted, so
if even Italy has growth it does not bode well for the buck against the shared
currency, which could climb further as the day goes on.
The Pound is on the rise also as a result of poor economic performance
in the United States. Additionally,
Bank of England’s Ian McCafferty sounded the trumpet of hawkish sentiment after
he expressed his belief that the central bank should start winding down some
its sovereign bond purchases from QE. It would be way too early to take such
action since rates have not been increased and would require levels near where
the Fed is. However, this discord between BOE members is convincing traders
that the bank will likely not maintain its easing stance much longer.
Brexit-wise, Britain has finally admitted
on paper that indeed an amount of money will need to be paid for the divorce
process to start going, if possible in any way, somewhat smoothly. The EU
has estimated a required payment of about EUR 100billion. While many surrounding
PM Theresa May disagree with the quantity, it is an important step toward talks
getting better and with less friction.
The U.S. Dollar is trading in mostly tight ranges after fluctuating
a bit throughout yesterday’s session on Fed Chairwoman Janet Yellen’s comments
during her first day of a congressional Housing committee hearing. While most currencies improved against
the buck as the Fed head spoke about the need to be cautious when it comes to the
pace of hiking rates down the line, although she does indeed see increments in
the next few years, the Euro dropped, falling by about half a percent from its
highest level in over a year. It may be a signal that the strong rally for the
shared currency may be calming down.
Australian Dollar and its New Zealand counterpart, the Kiwi, both
strengthened by about 1.0% based on good news out of China as it relates to
imports which matters tremendously to the Oceanic nations. Additionally, the Reserve bank of New
Zealand sold off 100.0MM in bonds. The currencies are trading near their best
levels of the year.
On more alternative dollar news, the Canadian
“loonie” reached its best level since May 3rd, 2016 after the
Bank of Canada hiked its main interest rate to 0.75%, the first increase since
The Euro lost points throughout Wednesday without any negative
headlines out of the ancient continent, but it seems that it reached ideal high
levels where most major banks held comfortable long positions. A little profit-taking never hurts, but
the currency remains strong especially after Consumer Price Index figures for
Spain, France, and Germany all met expectations, demonstrating that
inflationary growth is staying consistent.
As negotiations on Brexit get cracking and thus far to the favor of
those in Brussels, expect a push by EU lawmakers to make things harder on the
British by discussing the need for companies in London to move to EU capitals. For example, France wants a lot of the
tech companies in the UK to consider Paris while banking giants are looking for
cheaper real estate in Ireland and elsewhere in the bloc. This shall play to
the Euro’s favor long-term.
The Pound gained some ground this morning as markets reacted in
favor of the solid labor situation yesterday instead of staying focused on the
loss in real wages that inflationary numbers revealed. While economic indicators keep Sterling
afloat, the Brexit talks are not going the way Prime Minister Theresa May would
Foreign Secretary Boris Johnson has
spoken fiercely against the estimates for how much it will cost the UK to leave
the EU and EU Brexit Chief Michel Barnier is not having it after the two took
some shots at each other. Legally, the UK has to pay and it could be as much as
GBP 75MM. The main EU negotiator said Brussels was not seeking “revenge”
much less try to extort Britain, as Johnson had put it. When it comes to
talks and timing, Barnier said that he doesn’t care about all the noise, that
all he hears is just “the clock ticking.” The UK team has been blamed of not
having consensus, only worsening prospects of getting a trade deal done before
the 2-year mark when divorce process ends.
The U.S. Dollar stuck to familiar levels against its major
counterparts, while conceding significant ground to the South African Rand
after stellar Gross Domestic Product growth of 2.5% for the second quarter. Oil markets are trying to mount a
comeback based on the potential of OPEC succeeding in convincing nations to
deepen their cuts to production and adding Nigeria as well as Libya to a
curtailing plan since they were not originally included in the first agreement.
Petro-currencies such as NOK, MXN, and CAD have not been affected tremendously
as North American production has changed the oil game.
Political headlines are plenty, but this
has not affected the FX markets. Curiously enough though, the revelation of
e-mails allegedly linking Donald Trump Jr. and a Russian with information
potentially damaging to Hillary Clinton’s campaign sank stock markets temporarily
as traders took about 20-30 minutes to digest the news. Unfortunately, this
plays poorly for the greenback’s image as it distracts the administration from
working on their economic agenda. Fed Chairwoman Janet Yellen will be speaking
to the congressional Housing Committee today, which could produce statements
with some impact.
The Canadian Dollar is trading around its strongest levels since
September 2016 and could reach new highs if the Bank of Canada decides to
tighten monetary policy for the first time since 2010. Chances of a hike are at 87.0%. Policy
divergence, meaning the Fed’s ability to raise interest rates in recent times
while other central banks could not afford to, has faded as a source of
appreciation for the buck.
Recently, central bank officials across
the industrialized world are indeed looking to reduce easing tools and are
considering hiking their benchmark rates as well. If the BOC acts, the trend
of global monetary contraction will be established and the greenback could
suffer major damage. BOC President Stephen Poloz characterized the Canadian
economy as stable and that the strong growth of Q1 may moderate, but the
positive momentum in the non-energy sector is sustainable. The decision will be
announced at 10AM with a press conference to follow.
The Pound is slightly down this morning following disappointing
wage growth. The unemployment
rate fell to 4.5%, which is the lowest level since 1975, but considering high
inflation at 2.5% and nominal earning up just 2.0%, real wages fell by 0.5%.
The economic consequences of this are weighing on Sterling since it could mean
that future consumption and investment will suffer as a result of people taking
home less income. Furthermore, a voting member of the Bank of England, Ben
Broadbent, spoke of his will to keep an accommodative environment and vowed to
vote against any hikes in the near future.
With Brexit negotiations focused on a trade deal prior to paying
any tolls to the EU, anxiety is growing and concerns over jobs continue as more
firms are lured by other EU capitals to host their offices and operations
currently in London.
Paris is said to be making quite a pitch, thus reminding many companies how
every peace treaty and major agreement has been signed there for a reason: it’s
Paris. You want to be there.