U.S. Dollar breathes a little easier after Durable Goods Orders expand
The U.S. Dollar recovered overnight and improved this morning
following the release of better than expected Durable Goods Orders. Wednesday afternoon represented a
significant losing moment for the buck as it fell to its weakest value since
May of 2016 as measured by the Bloomberg Dollar Spot Index because of market
reaction to the Fed announcement.
Surprisingly, the FOMC statement, which had no press conference to
elaborate further, explained that members want to unwind the balance sheet soon
by selling bonds purchased during QE, but this did not boost the dollar. As expected, there was no hike, but
perhaps recent poor performance in indicators have convinced market
participants that nothing will happen until December.
There are concerns that the greenback is
weakening rapidly and it’s on pace to erasing all its gains since 2014, propelled
back when the Fed decided to start tapering its quantitative easing program. We
believe any buyers of currencies should take advantage any time a piece of data
aids the dollar since the 2014 momentum the dollar experienced is now on the
side of the Euro. We’ll see if tomorrow’s slated figures from GDP to
Personal Consumption help any further.
The Euro is now trading around its strongest levels since the start
of 2015 and could solidify its appreciating status if data out of the Euro-zone
on Friday delights spectators. CPI figures coming out of many places, including Germany, will be
closely watched as well as confidence measures for the whole bloc. Already Ifo
Business Climate surveys in Germany look great while unemployment in Spain fell
to its weakest level since the beginning of 2009. With the biggest of the
original P.I.G.S. on the rise, we can realistically expect any other stellar
data causing further appreciation of the shared currency.
The Pound was the exception in the dollar’s minor recovery, pushed
upward as a result of strong Retailing Reported Sales by the Confederation of
British Industry. Manufacturing
is lagging in the UK and GDP showed us there is a slowdown, but people are
buying things. In this strange imbalance, it is possible Sterling has room for
falling in value since the Bank of England meets next week and their
announcement may be characterized by concerns over Brexit effects, negative
ones, on the economy. Once it is established that the BOE cannot mess with
the accommodative environment while negotiations continues, the lack of interest-rate
hiking will likely sink the Pound. For now, the “quid” keeps hanging on.