Tuesday, March 21, 2017

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

USD
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.

GBP
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.

EUR

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. 

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