The U.S. Dollar sustained most of its
gains overnight and is looking to perhaps improve this morning based on solid
economic data that once more signals inflation growing and consumption being
steady. The Bloomberg Dollar Spot Index grew by 1.0% thus far this week, but
the “buck” may be under pressure. Investigations over Russian ties to
President Trump have taken a turn since last night when former U.S. National
Security Adviser Mike Flynn said that he’d be willing to speak to interested
authorities if promised immunity in the case. Political meddling between
nations is a serious matter and that may keep the U.S. Dollar subdued.
Personal Income and Spending data this
morning showed consistency as expected. Inflationary growth continues to
rise as Personal Economic Expenditures grew 1.8% over the expected 1.7%
estimate while also being revised upward from the prior month. Other Fed
members will speak today, but we’ll keep close eyes mostly on headlines over
Brexit negotiations, which might get ugly quick and the potential for scandal
in the world’s highest office.
The Pound fell this morning based on underwhelming data revealing
that fourth quarter GDP in 2016 negatively affected consumer spending as
inflation rose quickly.
Trade as a result of a weakened Pound benefitted, but this means only the
bigger players in the economy saw growth. Although prices may be on the rise
for some products, they are falling where it matters most.
Housing prices in the UK fell for the
first time in two years, a worrisome figure considering that the housing and
property industry suffered the most after the Brexit referendum. In terms of
Brexit talks, the European Union now looks committed to holding a united front
against any UK perks, saying that Britain will not decide its fate when it
comes to how the full separation will take place. Friction is in the air,
certainly not love.
The Euro fell 1.8% this week, based on European Central Bank dovish
commentary and now deflationary pressures. The Euro-zone’s inflation slowed to 1.5% last
month, way below expectations of 1.8%, a figure closer to the desired 2.0%
target set by the ECB. Although the political risk of France going rightist is
fading according to polls that show Emmanuel Macron, the
pro-further-globalization candidate, could win with a comfortable margin, there
are growing doubts over Brexit talks and the future of the EU.
The Portuguese government is saying that
Brexit shows the EU needs to be reformed, echoing the sentiment of other
troubled nations that feel squeezed by austerity measures placed on them to
prevent defaulting on debt. The struggles
are very real with an economic recovery that may need further help from the ECB
next year and political uncertainty across the continent. EUR could have room
for losses in the next week, maybe beyond.
The U.S. Dollar strengthened following a day of choppy trading as
market participants looked for guidance from Fed speakers and digested the
reality of the first day of Brexit negotiations. The developments overnight improved the
“buck” as European economic confidence is down and insider sources from the
European Central Bank informed that officials are not in any way determined to
abandon their accommodative approach to monetary policy.
Meanwhile in the U.S., Boston Fed
President Eric Rosengren went beyond the call of duty by exclaiming that three
more rate hikes would be appropriate this year, being way more optimistic than
the rest of his peers who have still vowed to produce two more increments in
2017. The Federal Funds Rate is now at 1.0% and chances of it closing above
1.5% by December are at 20.0% based on traders’ bets.
Gross Domestic Product for Q4 registered at 2.1%, revised upwardly
from 2.0% originally and Personal Consumption surprised with a reading of 3.5%
over the estimated 3.0%. Additionally, the Fed’s preferred measure of
inflation, Core Personal Consumption Expenditures (CPE) rose 1.3% beating its
1.2% expectation. As
always, Jobless Claims remain near a four-decade low. Clearly, things look
great on paper and with so much rising on political upheaval in Europe the
greenback is on the rise at the moment. Other Fed members will speak today,
we’ll watch mainly for New York Fed’s William Dudley at 10:30AM.
Sterling remained stagnant despite the historic and momentous
occasion that was invoking Article 50 to start the divorce proceedings with the
EU. The United Kingdom has a lot to lose as trade with the EU represents close
to 15.0% of British GDP.
More importantly, as proud as Brexiteers may have felt, a letter by the UK with
the intent to promote a trade deal tied to security was immediately rejected by
European lawmakers. Prime Minister Theresa May already is getting a taste of
what negotiations will be like: lots of No’s to her proposals and a firm stance
by EU officials to foment a sense of regret. We maintain a dovish forecast for
GBP in 2017.
The Euro is down; falling sharply as
deflationary pressures seems to be back on the table as the European Central
Bank considers its policy options. For years, the economic recovery in
Europe has necessitated multiple injections of intervention by the ECB, but
quantitative easing will come to an end this year. Nevertheless, German and
Spanish Consumer Prices registered lower than most analysts predicted which
puts pressure on the central bank to maintain its current loose approach. If
there is a chance of hiking rates, it would be left for next year, especially
with the downside risks at play politically.
The U.S. Dollar has improved by over half a percent overall since
yesterday’s session following positive economic indicators, optimistic
commentary from Fed officials, and a surprising call for Scottish Independence. Another surprise on our side of the pond
was stellar Consumer Confidence, which registered at its highest level in
sixteen years. Market participants seem to have moved past the fiasco over
healthcare overhaul, although many remain doubtful over the administration’s
ability to negotiate more effectively towards tax reform and higher fiscal
expenditures on infrastructure as well as border control.
Now that the United Kingdom has
officially started their divorce from the European Union, we will monitor the
GBP/USD and EUR/USD pairs closely as this event is indeed unprecedented. Today
marks a historic day, but it may go relatively quiet as markets prepare for
statements from EU officials and gauge the initial bets placed by traders. We
also will hear from Boston Fed President Eric Rosengren at 11:30AM and San
Francisco Fed President John Williams at 1:15PM.
The Pound was moving in tight ranges, but fell slightly as the North
American morning began. Across the board, stock exchanges are muted as
investors take in the reality of invoking Article 50. As we have explained before, we feel the
UK may face tremendous challenges moving forward as the EU will negotiate with
a heavy hand in order to not promote or foment any separatist sentiment in any
of the 27 nations left as members. This may prove to be a difficult prospect
because of a rise in populism in the continent and a wish for independence in
Scotland from the crown.
Since World War II, cooperation between
the British and the rest of Europe has been a key factor to maintaining a much
desired peace and opportunities flourished commercially with the ease of flow
of people and business. For the first time in a long while, disagreement is
the modus operandi and we hope that a mutually beneficial relationship can
remain. The devil will be in the details.
The Yen has appreciated by 3.5% since the middle of March,
benefiting from the nature of uncertain markets and a quick turn to
risk-aversion. The Japanese
are trying to push for inflationary growth and the government is working on a
stimulus package to rebuild much of its infrastructure, possibly revamp its
military capabilities as well. We see the Yen improving if negotiations for
Brexit start going sour early and if further mishaps occur in the U.S. as it relates
to policymaking. For now, expect dollar to stay afloat on policy divergence and
potentially as another safe-haven hedge to European chaos.
The U.S. Dollar is trading in slightly
improved ranges this morning following a crushing blow after Friday’s failure
to repeal and replace former President Obama’s signature health legislation. The
past two weeks witnessed the greenback depreciating by 2.5% against major peers
according to the Bloomberg Dollar Spot Index. Today’s main event that could
aid in turning the tide for the “buck” is Janet Yellen’s speech at 12:45PM regarding
Data-wise, earlier we saw the release of
better than expected Wholesale Inventories, which grew 0.4%, but were revised
downward for the month prior when they contracted. Some inconsistencies with
indicators may be cause for delaying hikes as seen with Durable Goods Orders.
We see the dollar’s chances for a surge later on as developments in Europe unravel
and focus stays on a more economic-driven agenda that includes tax reform, a
plus for Wall Street, and infrastructure, a plus for America.
Commodity-based currencies are still under pressure because of
swings in the prices of oil and raw materials. Iron Ore prices dwindling have
negatively impacted AUD and NZD. Additionally, South African Rand is steeply declining, mainly as a
result of political turmoil. President Jacob Zuma is ready to fire Finance
Minister Pravin Gordhan based on mismanagement of state funds and industries.
However, the two have been known to clash based on ideology as the President
has seek “radical economic transformation” while Gordhan kept spending in
check. ZAR is 4.0% down for the week and it’s only Tuesday.
The Pound is trading near its best levels in a month and half as
the world prepares for the official Brexit process to start tomorrow. Good news for Sterling came in the way
of compromise yesterday as UK officials agreed to maintain some rules and laws
in place even as they negotiate a separation from the European Union. The idea
is to soften the effects of Brexit, both speculative and tangible, since many
economists fear that the next two years could lead to hardship.
Clearly, British leadership will not back
down from demanding sustainable trade terms and will minimize any financial
costs. Some member countries are already demanding an amount of EUR 60-70
Billion in fees, a point of major disagreement. We will not know until it
happens, but we believe there will be pushback from both sides from the
beginning and there will be attempts to make an example out of the UK by the
more hardline pro-Union leaders. The Brits also need more people involved
in the talks as their numbers of individuals with expertise in EU matters are
The Euro remains around its highest point since November, staying
strong after improved odds of a victory by Emmanuel Macron in the upcoming
Presidential election. Currently,
Macron has a 69.0% chance to win, a dramatic improvement from the start of the
year when rightist Marine Le Pen dominated headlines. Polls and survey skeptics
have reason to be concerned after the surprises of 2016, but the loss of
excitement that pumped alternative candidates and parties across the continent
seems to be fading.
The AfD, alternative for Germany, a
radical anti-establishment party looking to defeat the democratic socialists
and deviate from international agreements, has also lost popularity. A poll
at the start of 2017 showed that 15.0% of the population agreed with AfD on
matters of refugees and economic stagnation. Elections in the Saarland
region showed their weakening appeal with just 6.0% of the votes.
The U.S. Dollar is weak and markets
across the globe are following suit following a devastating week for the White
House and the Republican-led Congress. Much of the excitement that brought
along gains for stock indexes and appreciation for the greenback the past four
months, was based on President Trump’s promise to use his mandate to fix healthcare,
deregulate, reform taxes and spend massively on infrastructure. Faith in
the administration’s approach to governing thus far is going down big league. Meanwhile,
the political uncertainty that clouds the European continent is now a reality
for the United States in terms of gridlock.
This week will be another busy one with
events potentially affecting the “buck” further. Fourteen officials from the
Fed, including Janet Yellen, will speak throughout the week and Purchasing
Managers Index as well as Gross Domestic Product data are slated for release. The
spotlight now more than ever will be on American economic sustainability as
well as the government’s ability to coordinate its efforts efficiently.
Friday’s vote cancellation casts doubt on the administration, Republican
leadership, and the future of implementing the agenda set out during a wild
campaign. USD is near its worst levels since October.
The Pound had a strong surge ahead of its pivotal date with destiny
as the UK prepares to officially separate from the European Union by invoking
Article 50 of the Lisbon Treaty on Wednesday, March 29th. This is no small thing, but investors and
traders seem ready, having priced in the move and I assume looking forward to
the separation. We strongly believe the Pound will be under pressure as negotiations
with the European leadership begin.
Germans, as well as other lawmakers, are
readying to bring their views to the table, which may not agree with UK exit
plans or trade hopes. The UK could face tremendous fees to the EU as it also
struggles to keep companies from feeing its shores. Furthermore, the Bank
of England believes the Brexit is a huge financial risk and wants to gauge lending
banks’ abilities to withstand worst-case scenarios. They expect negotiations
and change in dynamics will test contingency plans across the board.
The Euro is revived after good news for German Chancellor Angela
Merkel’s political party during the weekend. The Social Democratic Party achieved an important
victory in the Saarland region, a nice start to the election year for the party
and their biggest win in that left-leaning region in the last thirteen years.
Martin Schulz, the former EU president and current main candidate to follow
Merkel, has energized the centrists and reduced concerns that German elections
would hand power to alternative newcomers or rightists with an anti-trade as
well as anti-immigrant campaign agenda. EUR is at a four-month best.
The U.S. Dollar is trading in mostly weak
ranges after a day in which the gains seen since the Presidential election were
reversed. The “Trump Rally,” a positive correlation between stock exchanges
and the greenback is fading. Equities are 2.0% away from their record highs and
the U.S. Dollar is at its weakest point in four months. The theme of
risk-aversion is reviving the Yen, which happens to be at its strongest in just
Wall Street seems concerned that the infrastructure spending and
tax reform in the President’s agenda may fall short and not materialize
especially after seeing the tumultuous nature in congress’s attempts to repeal “Obamacare.” The political drama is casting doubt on
economic growth outlooks based on fiscal expenditures that now seem less
USD may no longer be driven by Fed expectations or economic
indicators, but rather over solutions to ongoing gridlock in Washington. Problems elsewhere remain, which will
keep dollar afloat, but there is now a focus on how good a job the government
can do to sustain the economic advancements seen lately.
The Pound erased some of its gains from yesterday’s impressive
inflation figures following dovish commentary from Bank of England’s Mark
governor stated that the UK cannot overreact to one piece of data, particularly
one that makes sense when considering that a prolonged weak Pound since last
June increased demand for British exports and naturally brought the level of
Sterling may not rejoice for very long as economists expect very
strong and negative reactions from the Euro-bloc nations once Prime Minister
Theresa May invokes Article 50, basically demanding the divorce next week. There
is news of UK talks with the World Trade Organization (WTO) to coordinate trade
agreements with other countries. Many fear the exodus of companies when the
official Brexit starts will leave many sectors unemployed and add recessionary
pressures to the UK.
The Euro is still fluctuating around its best levels since November
with a sense of relief amongst the establishment in Europe after good polling
figures from Emmanuel Macron after his Presidential debate. There is no data to propel or undermine
the Euro’s strength, which is now mostly based on optimism that politics will
not break down the Union.
We expect the Brexit to have an impact on
the currency, but it is difficult to gauge what the scenes of negotiations will
look like and if the effects will be felt right away. Studies have highlighted
that the UK is more likely to be affected once it has no access to the single
market, but Europe may miss its largest military partner. We feel Euro will
be under some pressure since election uncertainty in France and Germany will
not go away, but the Brexit process will test FX in unprecedented ways.
The U.S. Dollar weakened against its European counterparts as we
slept and developments in Europe caused markets to flourish. Although the U.S. economy is steadily
growing and the Fed has acted in hiking the interest rate while planning on
more increments, current market sentiment is focused on the likelihood of these
possibilities in the Euro-zone and the United Kingdom despite downside risks.
Surprisingly, the determination by the UK government to separate officially from
the EU is a Dollar-negative event. The Bloomberg Dollar Spot Index is at its
lowest point since November 10th.
Politics have been problematic for the
ancient continent, but the U.S. does not seem to be spared. The uncertainty
over fiscal policy, the controversial travel ban, and ongoing investigations
regarding Russian ties as well as wire-tapping do not necessarily make things
look attractive on our side. Markets welcome clarity and stability, but
there seems to be too much of a show going on at times.
Oil picked up a little bit of steam, but
CAD and Peso are up primarily on good data and central bank intervention
respectively. Canada had the best Wholesale Sales growth in thirteen years
at a pace of 3.3%. In Mexico, Banxico has successfully sold bonds and exercised
swaps to manage the supply of MXN.
The Pound is better this morning based on better-than-expected
inflationary data. UK
Consumer Prices increased 2.3% in February, above estimates and the Bank of
England’s target of 2.0%. It is the first time the inflation figure exceeded
the BOE’s desired level.
Along with other fundamentals, the UK’s progress is influencing
some economists to believe the central bank may be ready to hike interest
rates, an event that did not seem plausible after the referendum last year. In fact, the bank felt accommodative policy
needed to remain and lowered rates. Sterling is enjoying some appreciation now,
but we shall see what happens after March 29th with the EU likely to
not bend over backwards for the UK government’s liking.
The Euro is trading at its strongest level since November 11th
mainly as a result of a good performance by Emmanuel Macron during the first
French presidential debate. In
the field of alternative and scandalous candidates, Mr. Macron triumphed by
seeming poised, experienced, and skillful. A centrist with big eyes towards
more globalization, Macron is the antithesis to rightist populism that has
stolen headlines in the Euro-bloc.
His success means prosperity and the existence of a European Union
since Marine Le Pen, his closest rival in the presidential race, has vowed to
separate, which would crumble the single market. We expect the Euro to continue rising as
fears of new alternative leadership in Euro fade, but it’s tough to believe
polls and debate performances are not always indicative of a path to victory in
an election. Doubt remains.
The U.S. Dollar weakened throughout last week and is on a negative
trend as prospects for tighter monetary policy increased in the United Kingdom
and Europe. It is safe
to say that the rally that started after President Trump’s election has come to
an end, with stagnant equity markets and FX hedging losing its volatility. We
expect the dollar to react to headlines related to the remaining
socio-political struggles in Europe such as elections and the Brexit, which is
now slated to officially start on March 29th.
The end of this week will have economic data that could improve Fed
hike chances, but the path to two more increments will be long. Durable Goods Orders and PMI will close
out the week, but statements from Fed officials could add fuel to the fire,
just not sure if that’ll mean dollar will be hot or its chances of short-term
appreciation will be up in smoke.
such a turbulent and busy week, there’s clarity that other major currencies
were uplifted while resource-based ones suffer, especially with the inconsistency
in oil and commodities. However, there is some uncertainty and a spike in
volatility could be caused by anything in the current atmosphere.
The Pound gained last week, strengthening off of a hawkish BOE and as
Prime Minister Theresa succeeded in establishing a timeline for the official Brexit
process. March 29th
we expect the invocation of Article 50 of the Lisbon Treaty which will begin a tentative
2-year negotiation of terms of trade and other ties. This has no precedent,
thus why it is difficult to gauge what the effects exactly will be.
What is indeed known, especially after
the Brits got somehow hold of an internal German government document, is that
the European leadership plans to make the divorce feel exactly like that: an ugly
separation where both parties will be losing something and trust is damaged.
notes highlighted a commitment to make the British regret life outside of the
single market with no benefits of social mobility within the 27 member nations.
An ongoing fight with Scotland over an independence referendum date will likely
affect the GBP, which is why we still feel Sterling will have downward pressure
in the next three months.
The Euro is trading at its strongest level on over month a half as
the Euro-bloc prepares to see monetary policy normalization. After years of heavy QE, it seems like
officials are ready to allow other forces to stimulate the economy. The
European Central Bank will monitor the last batch of sovereign bond purchases
in 2017 while hoping that inflationary growth and lowering unemployment remains.
In France, Marine Le Pen won further support according to polls and
we expect her message to become broader and more engaging since populist Geert’s
attempt at taking power in the Netherlands left a sour taste in the mouths of
alternative movements focused on major change. Euro may have been due for some appreciation,
but we think worrisome scenarios are still to come.
The U.S. Dollar is trading in mixed ranges, mostly negative
throughout the week after a more dovish outlook from the Fed and political
developments in Europe that eased volatility. It is clear now that the Fed believes the economy is
steady and that there are some uncertainties it wants to monitor such as sustainable
wage increases and improved consumer spending.
Meanwhile in Europe, indicators have also
kept the Euro-bloc on recovery, to a point where the European Central Bank can
ease off the gas pedal when it comes to maintaining an accommodative approach. The
greenback has weakened and the Bloomberg Dollar Spot Index is now at its lowest
level since November 11th.
Treasury Secretary Steve Mnuchin is
attending his first G-20 finance ministers meeting where he has already made
headlines by working closely with his German counterpart Wolfgang Schaeuble and
stating that the U.S. has no intentions of starting a trade war, but will not
tolerate manipulation of currency fluctuations for unfair advantage. In
terms of data, we’ll see if Industrial Production does anything to aid the “buck”
when it’s released at 9:45AM. A 0.2% expansion is expected after it contracted
The Pound has rallied almost 2.0% this week bringing it to its
strongest level against the dollar since the month started. Prime Minister Theresa May does have the
power to invoke Article 50 to initiate the Brexit and polls in Scotland
indicate a call for independence from the UK would not be welcome by an overwhelming
majority. It would be a very tight race.
However, her determination and confidence
could be tested once the process starts because the European side of the
equation may not be so easy to solve. Scottish National Party leader and first
minister Nicola Sturgeon warns that economic concerns in her nation are only
going to be exacerbated if there is no access to the single market. She
truly believes Scotland is ready for freedom.
On the monetary policy side of things,
the Bank of England surprised us with lack of full consensus on their decision
to keep rates unchanged. Kristin Forbes, who is leaving soon, dissented with
her vote to hike. Although she may not influence any other meeting again, it
looks like tightening is in the minds of more central bank officials than just
in the U.S.
The Euro strengthened by 1.3% throughout the week and it’s now at
its best level in five weeks. The European Central Bank looks ready to step away from additional
quantitative easing and some members are expressing optimism in their ability
to hike the benchmark rate before the year ends. At 0.0% for main refinancing
and negative overnight deposit rates, the central bank has exhausted its
instruments in hopes of consistent growth.
Now that Spain is on the rise and inflation finally arrived, ECB member
and governor of the National Bank of Austria Ewald Nowotny has spoken in favor
of an end to loose monetary policy. He thinks the right time is now before prices go up too high. There
are downside risks in the horizon, politically especially, but the EUR may stay
around current levels with some upside if data continues to impress in the next
The U.S. Dollar is range-bound, sticking to levels that have been
stagnant as investors and traders keep eyes on the Fed decision and elections
in the Netherlands.
Today’s economic data met expectations as Consumer Price Index and Retail Sales
expanded by 0.1% each. We expect the Fed to not only hike the Federal Funds
Rate, but also to sound the trumpet of optimism after data has shown the
economy is on good pace for growth in many aspects such as inflation and even
wages. The “buck” may not gain a ton since the hike is priced in, but the
tone at press time could have a surprising impact one way or the other.
Markets rose overnight, helping some
resource-based currencies that had been sliding for days. Oil prices declining
hurt the commercial value of other commodities, but a report of lower than
estimated inventories of shale oil in the U.S. put a stop to the bleeding. The
neighboring CAD and MXN are improving as well as the oceanic NZD and AUD.
The Pound erased some of its early week
losses because it seems not a majority of Scots are feeling the whole
separation from the UK as much as their fearless leader. Although Nicola
Sturgeon diligently started the legal process to establish a referendum asking
Scotland if it wants to be independent, a few polls showed that 57.0% of those
surveyed would like to stay British.
It seems like Euro-skepticism is not just
a far-right phenomenon, but a growing sentiment amongst many across the
continent that the Union may no longer be the best system for economic or
social cooperation between nations. GBP is still on an almost 4.0% slide
since the start of February. The instability will keep downward pressure on
The Euro, a currency chained by the shackles of political
uncertainty, will likely trade around current ranges until we get a clearer
picture of results in the Netherlands. Twenty eight parties are on the race for power so a coalition is
expected to form in order to have a government. Geert Welders, the rightist politician
who could shake things up in regards to trade and immigration, has lost some
steam recently and his Freedom Party members may not be able to gain much
support from other parties unless their numbers are impressive. A lot is up in
the air, but all we can do now is to wait for the chips to fall.