After rallying to a fresh 11-month high yesterday, the U.S. dollar has seen a significant sell-off overnight.
The dollar’s losses can mostly be attributed to positive developments abroad including news that European Union leaders agreed on a package to deal with the flow of migrants to Europe. However, the greenback’s fortunes were not helped following a report that President Donald Trump has repeatedly told top White House officials he wants to withdraw the U.S. from the World Trade Organization. The report by Axios has sent European stocks and American futures modestly lower.
This morning’s economic docket will do little to help the greenback. U.S. consumer spending rose less than forecast in May. Purchases rose 0.2% in May, failing to meet estimates of a 0.4% advance. Personal spending, which accounts for about 70% of the economy, showed no growth.
On the bright side, the PCE Deflator inflation gauge showed price pressures remain above 2.0% and will give the Fed the scope to raise interest rates at least one more time in 2018. University of Michigan consumer sentiment will cross the wires 10 a.m.
Mexico will hold their presidential elections this weekend so we expect wild volatility and wide bid/ask spreads to close the day.
EUR/USD jumped the most in a month and gained almost a full percent against the U.S. dollar after EU leaders agreed on an immigration deal. The meeting of leaders continued until 4:30 a.m. local time before the announcement was made, easing pressure on German Chancellor Angela Merkel. After early opposition, the new Italian Prime Minister agreed to the deal and allowed Italian 10-year bonds to rise which also boosted the common currency.
The European Council also issued a new warning to the United States that if there is any increase to tariffs on car imports, the EU would respond with an “unwavering response.”
The Euro was also supported after a report showed that Euro-zone inflation reached 2.0% in June, in line with the European Central Bank’s target. However, the core reading that excludes food and energy prices was lower so the jubilation over higher inflation should be muted.
The British pound is finally seeing some reprieve this morning after falling to a yearly low against the U.S. dollar yesterday. The recovery appears to be technical as there was no major data released to move the sterling today.
While British Prime Minister May was not at the European meeting in Brussels yesterday, the coalition did discuss the lack of progress with Brexit. While the meeting was mostly focused on immigration, the leaders did conclude that a messy “no deal” Brexit was possible and that people should “plan for the worst.”