The U.S. Dollar is trading in choppy ranges after a weekend of
mixed reaction to the UK snap election that has created such havoc for Prime
Minister Theresa May. All
eyes are on Britain as traders try to interpret what a hung parliament will
mean exactly to the Brexit negotiations that initiate in a week.
The European lawmakers were not going to
make things easy for PM May and now she has to worry about even maintaining her
job. It is likely she will have a lifeline through minority parties and form
a government, but it won’t be a strong coalition and it’s certain markets are
losing faith in her.
No data out today for the U.S., but the
week shall be crucial for dollar direction as the FOMC announces its
much-expected hike on Wednesday. It is already priced-in that the Fed will
increase rates, but the narrative thereafter is what concerns market
participants the most. Sales and manufacturing gauges throughout the week
will impact the overall story of potential greenback strength or argue that
there are stagnant indicators keeping the Fed hesitant to hike after June.
The Euro picked up steam after Friday afternoon and remained afloat
overnight following good news for the established European order in France and
to the national congress are going well for French President Emmanuel Macron
after some seats gained by moderates. The final round will be next Sunday and
we’ll see if Macron solidifies a helpful coalition in the legislature.
Meanwhile in Italy, the Five-Star
Movement, the anti-Euro party, suffered momentum loss by failing to get enough
votes to go to a second round of voting in very populated regions such as
Genoa. No electoral reform was passed, which means a snap election is highly
doubtful in Italy this year, thus lowering the political uncertainty of the
Euro-bloc. We expect Euro to potentially flourish slightly this week.
The Pound remains vulnerable and fell another half percent because
of the surprising results of the elections last week. The Prime Minister had to assign some
hardcore Brexiteers to her cabinet, hoping to win the graces of highly upset
Conservatives who are concerned Brexit negotiations are escaping their grasp.
May is still arduously working to build
enough of a coalition to have a government, but the drama behind the election
casts doubt on her influence. This week will be imperative for her to
coordinate an ability to still rule, but Labour and even Liberal Democrats are
set to have their say be heard. We see Pound trending downward the next few
days as this all gets settled.
The U.S. Dollar is trading in mixed ranges in anticipation of an
eventful day. Against its major counterparts, the “buck” gained overnight while
losing to neighborly Canadian Dollar and Mexican Peso. The former improved based on a strong
surge in home prices, the best in a few decades in Toronto, and the latter on
Banxico’s move to set the FX rate, which has strengthened based on less concern
over a potential cancellation of NAFTA and increased value as a carry-trade
currency. It is worth noting that Mexico’s central bank is focused on
combating strong inflationary growth with increments in their interest rates.
In terms of data, Jobless Claims in the
U.S. came in just slightly above expectations and the last figures were revised
upward. I believe it is safe to say labor sector is solid on that front. All
eyes will be on the testimony by terminated former FBI Chief James Comey whose
words might spark some interest. Meanwhile, in Britain, the people will vote
and the Conservative Tories will be biting their nails after a late-campaign
poll surge for Labour. Reaction on GBP/USD will be monitored, election
results clear on Friday.
The Euro seemed bound to gain this morning, but reaction thus far
has been muted to the removal of guidance on interest rates being cut any
further in the future.
This means that the ECB officials see no need to continue on a rate-cut path,
but the issue of downgrading the inflationary forecasts for the next two years
had a negative impact on the shared currency. President Mario Draghi did not
speak with a highly optimistic tone while still pointing out that economic growth
is now more balanced.
His presentation focused on the need for
fiscal measures and financial reform that can result in much more sustainable
advancement for the Euro-bloc. Since inflation remains subdued, the ECB will
exercise patience and the wait-and-see approach will stay to keep an accommodative
monetary environment. EUR is about half a percent lower than yesterday.
The United Kingdom is out to vote once again. Prime Minister Theresa May is hoping to
have a firmer grasp of the legislative branch if her party achieves a larger
majority within Parliament. Nevertheless, recent polls cast doubt on the
Tories’ ability to even hold on to some of their seats, which could prove
crucial to maintaining the advantage they currently hold.
The British have put up with a terrible campaign season from both
sides that have increased anxiety over Brexit and also the future of some key
social programs. On
top of it, there is a sense of insecurity like never before after awful acts of
terror tied to Islamist extremism. We will see the reality of the outcome sink
in tomorrow when all votes are counted, but we sincerely wish that everything
goes smoothly and that the population faces no threats to their democratic
The U.S. Dollar is trending in weaker ranges this morning despite
underwhelming data out of Europe and renewed uncertainty over politics in the
United Kingdom. European
markets flourished as they come to a close although inflation numbers from
Germany and the Euro-bloc as a whole grew less than expected at 1.4% under the
estimated 1.5%, and lower than the desired 2.0% target by the European Central
Bank. This slowdown would help ECB
President Mario Draghi’s argument to maintain easing as a tool to help the
continent, but the Euro is not declining as you would expect off of policy
divergence with the U.S. Fed.
Similarly, Sterling has held strong after
new polling, using less traditional methods, showed that Prime Minister Theresa
May’s Conservative Party could lose a majority in parliament. Britain is coping
with insecurity as well as economic concerns revolving around Brexit. Nevertheless,
both the Euro and the Pound are within less than half a percent from their
highest levels of 2017.
There are no major indicators out for the
U.S. until tomorrow even as Chicago PMI and Home figures are slated for release
today. Against commodity-based currencies, the greenback is likely to gain
if oil prices continue to drop and dragging along other resources such as
The Euro is up after mixed data that revealed improvements in the
labor market, but inconsistency in inflationary growth as well as consumption. Germany in particular surprised with
contraction in their Retail Sales and Italy continued its black sheep status as
it experienced monthly deflation. Meanwhile, the unemployment rate for the Euro-bloc
fell to 9.3% from 9.4%. The figures certainly leave many traders pondering
if the ECB can indeed afford to start tightening its monetary policy.
On Monday, ECB President Mario Draghi
spoke to lawmakers in Brussels about the need to maintain a cautious approach
that remains open to intervention. Quantitative easing is working, even at a
lower level, but cannot be forgotten altogether after this year when it’s
scheduled to end. Long-term, this could weigh on the Euro, but traders are
commenting that there is safety in investing in the EU considering the progress
made in the past two years. Greece and Italy are dark clouds along with Brexit,
which we believe will eventually negatively impact the value of the Euro
The Pound’s resilience is remarkable as doubt builds over PM
Theresa May’s ability to consolidate power. A YouGov poll, which conducts surveys differently
from other sources, found that the Labour Party is closer in popularity to the
Conservative Tories than previously thought.
The projection they came up with for the
June 8th election would mean the ruling party would lose their
majority, which is exactly what Theresa May wants to avoid and confidently
believes will not happen. The call for the snap election is meant to be a
power move to guarantee that whatever “Hard” Brexit strategy they bring to the
EU would be law of the land. This new worry adds to volatility for the
Pound, however, we are yet to see the negative effects against the dollar.
The U.S Dollar is trading in favorable ranges in comparison to last
week following new developments affecting faith in the Euro and Pound. Policy divergence is also playing a
role in advancing the “buck” as recent commentary from different Fed figures
has almost guaranteed a second hike in interest rates at the FOMC meeting on
June 14. Chances of a hike are at 95.0%.
This week will be busy in terms of data with
Non-Farm Payrolls and the Employment Situation the most highly anticipated
figures on Friday. The expectations are low, so a NFP reading above 200K shall
be good for the dollar. Personal Spending and Income both rose and met their
exact expectation of 0.4% expansion. Personal Consumption Expenditures, the Fed’s
favored inflationary measure, also satisfied estimates. With focus on
troubles elsewhere and potential return to good economic performance in the
U.S, we feel the dollar could be up for some gains in the next few weeks.
The Euro improved by 2.4% over the course of May, benefitting
tremendously from the relief felt around the continent as France elected
Emmanuel Macron over the anti-EU candidate Marine Le Pen. Also, economic numbers impressed as it
became clear that Germany could grow in the midst of instability and the
recovery hoped for by the European Central Bank actually widened across
borders. However, the shared currency could start facing some doubts as it
deals with the details of Brexit talks, but more importantly, the struggles of
Italy, its third largest participant.
The Italian government is voting to change
party-eligibility rules and actually hold a general election before 2018.
Established parties are shooting for this to pass because they feel that
ongoing criticism over the bad situation in the country will only fuel
popularity for the Five-Star Movement, the now more renowned opponent of the
Euro and EU membership. Bank reform attempts have failed, the economy is
slumping, and overall mood in the country is that things ought to change. This
naturally bodes well for the dollar against the Euro in the next few months,
but any slip on our side will continue to keep U.S. Dollar gains subsided.
The Pound had a very strong start to May, but has since dwindled by
almost 1.0% as recent days came with negative headlines for the U.K. Aside from the terror that struck
Manchester, Britain is now coping with pessimism over its Conservative
When PM Theresa May announced the snap elections scheduled for June
8, her party held a 20.0% lead over the competition. Now it’s different, as
that discrepancy has fallen to single-digits. The early obstacles in Brexit negotiations where
the EU has looked determined to make the UK pay a heavy tolls prior to re-working
trade, anxiety over big job losses down the line as companies leave, and
geopolitical concerns are now weighing on Sterling.
The U.S. Dollar traded in choppy ranges yesterday as market
participants digested the FOMC Minutes. It is clear that the Fed is resolute in
its aim to hike rates twice more this year while keeping an eye on wages and
policy divergence has kept the greenback relatively above water, but the Fed’s
tools are limited when trying to push towards economic growth.
Tomorrow’s Gross Domestic Product, Personal consumption, and
Durable Goods figures will paint a clearer picture of where the U.S. economy is
this year and if indeed it can afford more than one hike in the interest rate. Also, the Fed is hopeful, as many other
central banks, that government steps up and do their part with fiscal spending
to boost progress. Odds of a hike for
June 14th are at 95.0%.
Jobless Claims, both initial and
continuing, came in lower than expected; once again proving the labor sector is
healthy, at least on paper. With no other data out today, we’ll see if any
headlines out of the NATO Summit shake the FX market as strong statements are
likely from European, UK, as well as American leadership.
The Euro’s momentum has been halted after remarks from European
Central Bank President Mario Draghi that certify he is not ready to consider
any tightening measures. As
far as his speech in Madrid yesterday is concerned, the highest financial
official of the EU does not feel any pressure to change his stance, which is
one of keeping the easing going until end of the year.
While German and other leaders may disagree, it is important to
point out that the ECB’s efforts are paying off as the recovery the continent
desperately needed has widened. Although here we are some of the more adamant analysts when it comes to
worrying about the ongoing debt problems with Greece and a vulnerable Italy for
the long-term, the Euro is where it deserves to be considering economic
advancement despite the fiscal issues that plague the Euro-zone and serious security
concerns that were once unimaginable for the region.
The Pound continues its rotten week following a downgrade to its
revision of GDP growth for the first quarter of the year. Originally, the reading showed a 0.3%
level of growth, but numbers reviewed revealed a slightly less productive
quarter at 0.2%. Exports suffered and in general there was stagnation in other
With an ongoing investigation, political
campaigning before the June 8th elections, and the dark cloud of
Brexit, we foresee Sterling going down a bit in the next few weeks. Overall,
we have little faith in Brexit talks resulting in a great situation for the UK
and if indicators start dwindling, then more reason to believe GBP will
depreciate in big way by year’s end.
The U.S. Dollar sustained most gains from its advance yesterday
afternoon that developed in anticipation of the FOMC Minutes later today. It is expected that the notes will keep
the odds of an interest rate hike high although the American economy has slowed
its good data roll in the last few weeks. In comparison to other central banks,
the Fed is resolute in increasing borrowing costs this year and tightening is
monetary policy. For many banks with resistance levels for Euro and Yen,
their large orders were filled yesterday as well after rapid rise in value for
both currencies in the last week.
Technical talk aside, the UK’s need to
cope with critical security threats added to the “buck’s” appreciation in times
of uncertainty over terror. In addition, China’s credit rating was cut by
Moody’s, the first time the world’s second largest economy has its debt lowered
since 1989. This development could add pressure on resource-based currencies
wishing for perpetual prosperity for their biggest buyer.
PMI Composite will be out later today at
9:45AM. Yesterday’s Markit surveys showed estimated expansion in services, but
slowdown in manufacturing. Existing Home Sales will also be released at 10AM,
but we believe statements from European Central Bank President Mario Draghi
at 9:35AM will have more of an impact.
The Euro finally slipped after orders filled in and traders put
emphasis on the FOMC Minutes release at 2PM that could subdue the shared
currency’s recent revival. Nevertheless, the Euro is still trading around its
strongest levels in six months. Economic data recently solidified that the Euro-zone is in better shape
than last year and can afford to see the ECB ease off the gas pedal when it
comes to intervening to incentivize growth.
Remarks with some frustration on Euro
weakness by German Chancellor Angela Merkel and her Finance Minister Wolfgang
Schauble manifest that the most vibrant nation feels the ECB could start
tightening. Current interest rates from the ECB (benchmark at 0.0% and
others in the negative) do not reflect the strength of the German economy and
the drag on Euro has to be blamed partially on policy divergence. ECB
President Mario Draghi will have a chance to express his stance later this
morning and we will keep an eye on signs of negativity that could sink the Euro
Sterling is under major stress after the
awful bombing in Manchester during an Ariana Grande concert. The loss of young
lives and the involvement by ISIS created a strenuous situation for security
forces and the government, which declared the country on high alert. The threat
level was upgraded to Critical from Severe. With all campaigning shut down
and Brexit talks fading from headlines, we see a quiet session for GBP, which
may depreciate further as Britain recovers.
The U.S. Dollar is trading in tight ranges as European markets
flourished overnight following good news in terms of data out of the Euro-bloc. Stock indexes were mostly in the green
worldwide and the dollar also surged slightly as a safe-haven to crisis. Unfortunately,
on yesterday evening another senseless act took the lives of concert goers in
Manchester and it seems that the attack is being claimed by the cowardly “evil
losers” of ISIS. The greenback tends to gain during chaotic situations, such
as terrorist attacks elsewhere, and Pound did indeed depreciate.
Markit Manufacturing and Services PMI are
due later this morning and are slated to show a faster expansion than last month.
New Home Sales will also hit the wire at 10AM. With economic figures and
FOMC Minutes tomorrow, we shall see if the dollar regains some steam after
experiencing its worst week in a year.
The Euro may have dwindled earlier as the
North American markets awakened, but is now advancing as a result of stellar
Purchasing Managers’ Index growth. The measure came in at 56.4 slightly over
the expected 56.2, which represents its fastest pace of progress in six years. With
distractions in Washington and divergent performance recently, the European markets
are looking like a solid buy. Many traders agree that global investors are
right to seek the less volatile situation in Europe; however, where we disagree
is the long-term.
Italy is the third largest economy and
the struggles are real, not just in banking, but in almost every aspect of the
economy. The averages for several indicators would be higher for the
Euro-zone if Italy wasn’t in such a dismal situation that involves a fragile
political stage as well. 2017 may not play out to be a year when the Euro
hits parity with the “buck,” but the closer we get to 2018, the closer we get
to Italian general elections, the more pressure on the shared currency.
The Pound fell yesterday based on fear that Brexit talks may take a
turn for the worse as UK officials vowed to reject any Brexit deal that forces
payment of €100 billion or more to leave the EU. Nevertheless, the attack yesterday is
likely weighing heavily on the country and the geopolitical concern of the negotiations
may be set aside. There is no data and we will monitor if Sterling trends
downward from the current havoc. Gross Domestic Product numbers will be out
on Friday and any further momentum may manifest on the exchange rate then.
The U.S. Dollar is trading in mixed ranges following a bit of news over
the weekend affecting commodity-based currencies and solidifying the Yen. Oil prices surged dramatically as
speculation grew that on Thursday OPEC will agree to extensive production cuts,
driving up the prices of other commodities and thus boosting petrocurrencies and
others such as MXN, CAD, NZD and NOK.
Meanwhile, the Yen extended its gains to 2.2% since the start of last
week driven by uncertainty in global markets, underperformance in the U.S., and
positive indicators from its shores. Gross Domestic Product advanced for the fifth consecutive quarter and speculation
is that of expansion in manufacturing as well as other measures like PMI today.
Without any data today, we will see if
any political headlines move markets and keep an eye on the Euro and Pound
Sterling as they continue to surge into multi-month highs.
The Euro reached its highest level since September 8th
after a week when political downside risks started to fade for the shared
currency and optimism gripped the continent. The European Central Bank may agree on maintaining
an accommodative environment, but German Chancellor Angela Merkel feels that
the Euro is a bit too weak.
After German trade surplus numbers and strong inflationary growth,
Merkel decided to credit the currency’s weakness for the results. She also added that the election in
France was great and that she is willing to cooperate as much as possible with Emmanuel
Macron “so that he’s successful.”
The Pound fell slightly based on new Brexit concerns. British
Brexit Secretary David Davis (not a typo) stated that the UK would walk away
from current divorce proceedings if the exit bill is too high a toll. Apparently, the Brits have a budget and
they do not wish to pay 100 billion Euros or more. It is likely the lawmakers who
are meeting today in Brussels to set a mandate for EU Brexit negotiator Michel
Barnier are not going to lower the cost.
This feels like the spark we have been waiting for to make the
drama of this break-up far more exciting than it’s been since it started. The back and forth shall entertain and put
serious downward pressure on Sterling.
The U.S. Dollar continued its losing streak this morning following
based on solid data in other regions and political headlines in the U.S. Markets rewarded the Euro over the
greenback after solid Gross Domestic Product and inflationary data suggested
that the economic recovery in the trading bloc is now consistent and that
downside risks related to elections have vanished for the most part.
Meanwhile, the dollar is likely to
continue floundering as headlines related to current administration woes take center
stage. The “buck” has lost its lust in the eyes of investors as distractions
have taken away from America’s path towards infrastructure spending and tax
reform, which drove the dollar higher for months after November.
We foresee some struggles for the USD in
the next few weeks as we muddle through some unchartered waters. Oil prices are
likely going to fluctuate wildly as OPEC figures out to what extent they can
keep curtailing production and compete with North American output. Canadian
Dollar and Mexican Peso have recovered some ground the past few days, notably
MXN improved by 2.5% in the last nine days.
The Euro surged to its highest level in about seven months as a
result of increased faith in the Euro-bloc’s ability to stay on course
the European Central Bank said it is not ready to consider tightening its
monetary policy, characterized by 0.0% rates and easing measures, the central
bank officials are likely to speak in a positive tone moving forward.
Consumer Price Index figures were released this morning showing a
1.9% pace of yearly growth, just slightly under the desired 2.0% the ECB has
aimed for throughout the last few years. We feel that the Euro deserves to be given credit, but any ongoing
struggles related to the periphery such as Greece’s debt repayment and Italian
stagnation will weigh on the shared currency if no resolution in sight.
The Pound appreciated on the based on general dollar weakening and
the lowest unemployment rate in the UK since 1975. The jobless rate fell to 4.6%, but
economic data came with a caveat as wage numbers underwhelmed and revealed what
many economists feared: Brexit uncertainty has deteriorated the labor sector
and negatively impacted households.
Wages adjusted to inflation fell 0.2% in
Q1, mostly caused by a half percent drop in March. Bank of England Mark
Carney’s predictions are starting to become reality in the midst of talks,
which so far have left a lot to be desired. GBP gains may be subdued and we
still look for downward action down the line.
The U.S. Dollar is trading in weak ranges after ending last week
with disappointing data that puts into the doubt the Fed’s ability to hike
interest rates two more times. Retail Sales and other consumption figures highlighted the struggles of
the economy in 2017 and the Bloomberg Dollar Spot Index is near its lowest
point of the year. Chance of a Federal Funds increment at the June 14th
meeting are above 93.0%, but we foresee difficulty in the FOMC taking action
and likely waiting until the last quarter of the year.
Data continues to underwhelm with the Empire Manufacturing gauge
This week we will monitor European developments as political uncertainty has
faded to a certain extent, while Brexit hangs over the continent like a bag
full of dirty water ready to burst at any point. Oil prices moving upward as a
result of extended production cuts by OPEC and Russia is aiding our NAFTA
currency pairs, so expect CAD & MXN to stay on recovery mode at least for
today. Shale production in North America, which OPEC wishes would cease,
could still be a drag on them later this week.
The Euro is on the rise based on confidence built in the past few
weeks with the French election easing concerns over the rise of
anti-establishment forces and indicators proving that the European Central Bank’s
measures have worked. Gross
domestic Product numbers will be out for the Euro-zone tomorrow with an
expectation of 0.5% quarterly growth. Furthermore, Chancellor Angela Merkel is
elated at her party’s recent victories in regions where they had not triumphed
as much before, solidifying that her Christian Democratic Party will remain a
priority as she gets ready to run for a fourth term in 2018.
The Pound is currently in familiar
ranges, refusing to fall in the midst of tense Brexit talks. The UK refused
to accept European Union demands in regards to the timing of a trade deal after
the exit terms are settled and the rights of EU citizens in Britain. The back-and-forth
seems like an attempt to quiet critics of Prime Minister Theresa May’s approach
and to rally conservatives behind the idea of running negotiations instead of
being told what to accept.
The petulant stance may backfire as
companies such as JP Morgan chase have announced plans to move jobs to Dublin and
are already reaching agreements to do so soon. We strongly believe pressures
from Brexit will sink Sterling especially if talks get more complicated and