Thursday, June 8, 2017

U.S. Dollar slightly better against EUR as Draghi sets dovish tone

USD
The U.S. Dollar is trading in mixed ranges in anticipation of an eventful day. Against its major counterparts, the “buck” gained overnight while losing to neighborly Canadian Dollar and Mexican Peso. The former improved based on a strong surge in home prices, the best in a few decades in Toronto, and the latter on Banxico’s move to set the FX rate, which has strengthened based on less concern over a potential cancellation of NAFTA and increased value as a carry-trade currency. It is worth noting that Mexico’s central bank is focused on combating strong inflationary growth with increments in their interest rates.
In terms of data, Jobless Claims in the U.S. came in just slightly above expectations and the last figures were revised upward. I believe it is safe to say labor sector is solid on that front. All eyes will be on the testimony by terminated former FBI Chief James Comey whose words might spark some interest. Meanwhile, in Britain, the people will vote and the Conservative Tories will be biting their nails after a late-campaign poll surge for Labour. Reaction on GBP/USD will be monitored, election results clear on Friday.

EUR
The Euro seemed bound to gain this morning, but reaction thus far has been muted to the removal of guidance on interest rates being cut any further in the future. This means that the ECB officials see no need to continue on a rate-cut path, but the issue of downgrading the inflationary forecasts for the next two years had a negative impact on the shared currency. President Mario Draghi did not speak with a highly optimistic tone while still pointing out that economic growth is now more balanced.
His presentation focused on the need for fiscal measures and financial reform that can result in much more sustainable advancement for the Euro-bloc. Since inflation remains subdued, the ECB will exercise patience and the wait-and-see approach will stay to keep an accommodative monetary environment. EUR is about half a percent lower than yesterday.

GBP

The United Kingdom is out to vote once again. Prime Minister Theresa May is hoping to have a firmer grasp of the legislative branch if her party achieves a larger majority within Parliament. Nevertheless, recent polls cast doubt on the Tories’ ability to even hold on to some of their seats, which could prove crucial to maintaining the advantage they currently hold.
The British have put up with a terrible campaign season from both sides that have increased anxiety over Brexit and also the future of some key social programs. On top of it, there is a sense of insecurity like never before after awful acts of terror tied to Islamist extremism. We will see the reality of the outcome sink in tomorrow when all votes are counted, but we sincerely wish that everything goes smoothly and that the population faces no threats to their democratic duty.  

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