European currencies rally as U.S. Dollar continues losing streak
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.