Tuesday, July 25, 2017

U.S. Dollar falls further as confidence grows elsewhere

USD
The U.S. Dollar remains on its weakening trend ahead of today’s vote on healthcare overhaul by the Senate and the currency is in the midst of losses to political risk as well as economic performance divergence. Data recently has shown that American indicators are meeting expectations, while overseas they hit record-highs as the European recovery shows vast strength. The greenback is now trading near its worst level since August of 2015 against the shared currency.
The tumultuous pressure on the dollar can only be eased if perhaps there are signs of less gridlock in congress, but at this point that looks a bit far-fetched. Fed-wise, we think discussions over winding down the balance sheet and confidence over future gradual hikes could have an impact, but there is little to stop the dollar’s bleeding.
Durable Goods and GDP at the end of the week will be crucial to set a more positive tone if there is reason for it. Oil prices may be on the up and up after news of deeper production cuts by Saudi Arabia, but MXN and CAD continue their fortunes off of their non-energy sector.

EUR
The Euro keeps on climbing as now confidence grows. The German IFO business climate survey improved to its highest reading ever while in France their confidence gauge reached the best level in six years. It seems like the bigger economies feel more than just fine about progress being made, while the European Central Bank maintains a strong economic outlook yet wants to contribute in steadying the flow of quantitative easing. There is plenty to excuse the Euro’s momentum and dollar-bulls will have to wait and see at what new high level there is profit-taking to see a reversal in greenback losses.

GBP

The Pound is surviving in the face of complicated negotiations over the best deal for Brexit as parties consider a transition period for trade and then a full abandonment. Liam Fox, a strong advocate for a hard Brexit admitted that it will be difficult to have a trade deal with the EU set up prior to the Brexit 2019 deadline, which would mean maintaining key trade terms for an undetermined period of time. It is not clear what direction the talks will go, but the EU is determined to charge a fee before the UK starts putting together their needs in the form of a new deal proposal.

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