The U.S. Dollar remains flat in the face of declining oil prices, wild swings in other commodities, and anxiety in the emerging-market realm.
Barriers to free trade emanating from the current “war” are negatively impacting outlooks for growth in resource-based economies and their currencies. New Zealand Dollar is the exception at the moment after core inflation grew at the fastest pace in seven years pushing the “kiwi” up by half a percent already this morning.
We will hear from Federal Reserve head Jerome Powell as he speaks to the Senate at 10AM in what will be a two-day hearing where he will discuss the economy and perhaps offer further guidance on the Fed’s hike outlook. We expect Powell to sound confident, yet he may caution about trade conflicts eventually affecting economic momentum. He will likely also maintain expectations of Fed action untouched and may refer to the lack of need for accelerating the pace of increase to the main interest rate.
The Euro is hanging on as a slow economy weighs on the shared currency. The International Monetary Fund issued some statements regarding their concern over the current tension in free trade negotiations with the U.S. imposing tariffs without the use of the World Trade Organization.
They highlight the negative effect on emerging and developing markets, but also show concern for the overall health of advanced economies disagreeing with each other. Exports fell a bit for the Euro-zone which dragged down their Gross Domestic Product in Q1, so there are worries over how a worsening conflict could inflict further pain on the continent’s economic development.
The Pound retreated slightly overnight with news of Prime Minister Theresa May facing more obstacles from her own party members when it comes to prolonging the U.K.’s inclusion in EU customs regulatory framework. London bankers are concerned also that their services were not included in May’s white paper that certainly wanted to protect manufacturing to secure a clean Brexit after a transition period.
Conservatives and Labour members in the House of Commons plan to pass legislation that would force the U.K. to stay in the Customs Union if no Brexit trade deal is reached by the deadline next year. This complicates May’s position and seems like another blow which could lead to her ouster.