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
The U.S. Dollar is currently on the rise as strong Producers Price
Index figures hit the wire this morning along with ongoing lowering of Initial
Jobless Claims. PPI
excluding Food & Energy grew by 0.4% in the month of April; double the
expected 0.2% while Initial as well as Continuing Claims came in at lower
figures. It is important for the “buck” to trend higher on the basis of good
economic performance since markets are growing concerned over the FBI Russian
probe and firing controversy that seems to serve as another obstacle for the
Trump administration to make progress on its economic agenda.
In addition to improved indicators, Boston Fed President Eric
Rosengren once again called for three more interest rate hikes this year
explaining that inflation needs to be prevented from outpacing its desired
target as the economy continues to grow. Markets remain relatively quiet as it looks like there is a mix of
convincing data that global output is better, but also risks in the political
arena subduing any gains in confidence. Lots more data tomorrow could push
dollar higher if positivity remains.
The Euro is in the midst of depreciating
despite upgrades to its growth forecast. The European Commission raised
their estimates from 1.5% to 1.7%, but warned that Brexit comes with a lot of
uncertainty that could potentially cause stagnation, already seen in poor
household consumption as well as business investment.
European Central Bank President Mario
Draghi spoke to Dutch lawmakers and maintained a tone of wait-and-see, but
certainly mentioned that the recovery seen in the Euro-zone is less choppy than
before and that political risks have faded after the French election. We
think solid data in the U.S. and policy divergence will keep EUR from gaining
significant ground as well as the prospects of trouble in Italy.
The Pound fell this morning following the BOE policy meeting in
which officials said that any increment in interest rates will depend on a “smoother”
Brexit. Industrial Production numbers did not help the prospects of any rate
hikes as they revealed that the economy lost momentum in the first quarter of
Households, per Governor Mark Carney, are also feeling pressure from higher
prices, translating into hesitation in large purchases as well as retail.
The reality is that Brexit is not a time
when the economy should be expected to be stellar in any way and the bitter start
to the talks has left lot to be desired. We feel Sterling is overpriced at the
moment and shall suffer further from the consequences of abandoning its place
in the European security, trade, and migratory coalition. Some economists
expected the central bank to have more than one dissident pushing for hikes,
but only one argued for it.
The U.S. Dollar surged after an important weekend in which the European
Union, moderate politics, and trade openness were all big winners. Following a shockingly rightist 2016 that
witnessed the passing of Brexit and the scandalous campaign that led to Donald
Trump’s presidency, the landslide victory by Emmanuel Macron of France has a
surreal feeling to it, yet it comes with a sense of calm because pricing in his
triumph was correct.
Things went according to plan and the methods of prediction achieved
accuracy. Nevertheless, the greenback stands solid after a week of positive
data and correction in the market after so much concern and speculation over
Today bring us nothing in terms of data.
We foresee a quieter week, but recently we’ve had surprises. All eyes may now focus
on Britain as the Bank of England prepares to meet on Thursday. Their take on
policy in the midst of negotiations is likely to cause movement. Inflationary
and consumption figures will round up the week.
The Euro is trading in similar ranges to last week, originally
spiking by over a full cent once Macron was declared the winner of the
presidential election. Emmanuel Macron is living every kid’s dream: His teacher
is the love of his life and he indeed became president. The enigmatic former investment banker
is new to running races, but his demeanor won the French voters, or at least
more than the majority of those willing to cast a ballot. Overall, the turnout
was not great and many voters chose “blank” as their option in protest of the
two top candidates.
The country is certainly divided and
serves as an example of disillusion in the European citizenry. It is worth
noting that elections to the French National Assembly will be held on June 8th,
when it will be imperative for Macron to form a coalition towards the center. The
nationalists behind Le Pen may not have won, but they received twice the
support they managed to get when Marine’s father ran for president in 2002. The
anti-establishment feeling is strong and also growing. Macron will need to
be an ambassador for pro-trade, promoting the values of cooperation and
The Pound did not fluctuate wildly after the election in France.
GBP will likely stay untouched until Thursday when the BOE meets. It is expected that Prime Minister
Theresa May will consolidate power as earl elections in England have given the
Conservatives an advantage already. Data-wise, the UK saw some terrible housing
numbers as home prices had their first quarterly fall in five years. With
threats of France competing to be the new banking hub over London, Sterling may
be under pressure soon.
The U.S. Dollar is trading in mixed ranges this morning having
improved overnight against commodity-based currencies while faltering against
most European counterparts.
Prices of metals continue to drop on concerns over fading Chinese demand as the
world’s second largest economy is making efforts towards services and focusing
less on manufacturing. Consequently, the currencies of countries dependent on
the demand for raw materials and natural resources are down. However, the
greenback remains weak against EUR and GBP despite the positivity displayed
during the FOMC meeting yesterday.
Chances of an interest rate increase at the next June 14th
meeting climbed to 97.5% after the Fed announcement as officials seemed to
downplay the recent slump in economic indicators. Furthermore, there was no mention of
what to do with the balance sheet and the tone was optimistic about maintain the
rate outlook to a total of three hikes this year. Gradual tightening will be
the law of the land and we expect that if figures improve in the next month the
dollar will gain ground. We have another vote scheduled today on healthcare
overhaul in Congress and we’ll update if that has any effect.
The Euro advanced further overnight as a result of a highly praised
performance by candidate Emmanuel Macron at the final debate before this Sunday’s
Marine Le Pen apparently was not at her best and was being schooled by a man
who was relatively unknown not long ago. His lead is of 20 percentage points
according to polls, but the world is still anxious over the potential of a “Frexit.”
If Le Pen wins, the Euro will plummet as the very existence of the European Union
will be at peril. Euro could have some “relief spikes” next week if Macron
triumphs, but we do not see a rally that would exceed current ranges by much.
The “Loonie” has depreciated aggressively in the past few weeks,
now swimming around its worst levels against USD since February 18th,
2016. Oil price
fluctuation has certainly not helped, with major dips being the result of
unexpectedly high production in North America regardless of an agreed output
cut by OPEC nations as well as Russia. CAD reflects the problems being faced by
currencies highly affected by the oil glut, but there is hope in the horizon
for our neighbor currency.
The non-energy sector has been growing,
the accommodative stance by the Bank of Canada may change if inflation spikes,
and threats to trade agreements such as NAFTA may force Canada to use its
leverage in working other deals. One thing for sure is that the animosity
towards open trade from the new administration in the U.S. has made Mexico and
Canada’s relationship tighter while South American economies interested in
further free trade improve their economic outlooks. This however may only be
seen in the long-term as current weakness may be here unless oil demand and
prices go upward in the summer.
The U.S. Dollar is trading in mostly tight ranges primarily because
of anticipation of many risk events at the end of the week. Data-wise the ADP Employment indicator
showed an increase of 177K jobs, just slightly above expectations of 175K, but
the prior month’s figures were revised downward. Later at 2PM the Federal
Reserve will reveal its decision, but will not hold a press conference
afterwards. Policy divergence is one factor that can push the dollar upward,
but if the tone is dovish considering the fact that economic numbers have been
underwhelming, the “buck” could suffer on speculation that the Fed will only
hike once more in 2017.
Oil prices have improved after reaching a
six-week low yesterday on the basis of further output cuts by OPEC producing countries
and also Russia. Peso remains around its average for the year, while the “loonie”
has sunk to a 14-month low. CAD could recover if WTI Crude hits and stays
The Euro continues to stay afloat ahead of the French elections
with the help of good data and ongoing efforts to support Greece. The troubled touristic nation that has
stolen financial mishap headlines for the last eight years agreed to further
spending cuts and other austerity measures in order to keep being fed by
Brussels. It is this type of intervention that some economists fear may be
needed in Italy as the country faces banking irregularities and inefficiencies
to add to its fragile political state.
Matteo Renzi, the Prime Minister who had
to leave after his referendum on amending the constitution failed, is back to
lead his Democratic Party to combat a rising anti-establishment party, the Five
Star movement. Threats to status-quo leadership across the continent will
weigh on the Euro in the long-term, but for now focus will be on France’s
willingness to say “No” to anti-EU Marine Le Pen.
The Pound continues to surprise traders, rising as a result of
surprisingly positive indicators. An indicator of retails sales showed that British products are higher in
price, highlighting inflationary growth in the UK as a result of the weak Pound
since Brexit. In addition, manufacturing is improving at a multi-year best
Aside from the incredible resilience in
certain aspects of the economy, Prime Minister Theresa May seems to have been
fueled by the report of a bad dinner with EU officials to reaffirm her commitment
to working on a beneficial Brexit for her constituents. When it comes to
negotiations with the EU, she claimed she’d be a “bloody difficult woman.”