Friday, March 31, 2017

Brexit talks and poor data keeping U.S. Dollar afloat this week

USD
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.

GBP
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.

EUR

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.

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