The U.S. Dollar is trading in favorable ranges, reaching multi-month highs against major counterparts after a positive start to Federal Reserve Chairman Jerome Powell’s hearing with the Senate Banking Panel.
We shall see a continuation of this economic discussion today at 10AM. It is clear that his assessment on the economy is pushing the greenback even as he admitted that trade conflicts could compromise wage as well as economic growth. Additionally, disappointing data across Europe served as further evidence of the divergence in economic performance with the U.S.
We shall see if Powell’s words remain a driver of dollar strength or if any other surprises cause a downward swing. The rally experienced throughout yesterday afternoon was of an average of half a percent across the top ten major currencies while improving also against commodity-based currencies that are being crushed by pessimism and uncertainty. A weird combination of safe-haven status as well as confidence in domestic figures is what is maintaining the buck flourishing.
The Euro fell to its weakest level in about three weeks after inflationary data in the Euro-zone failed to meet the low expectation of 0.2% growth for June coming in at 0.1% instead. Although Japan and the European Union signed a trade agreement that they have been working on since 2013, the dollar remains ahead of both Yen and Euro because the fear over trade barriers is aiding the buck’s safe-haven status. JPY happened to fall to a 6-month low.
The pact sends a strong message that the EU is determined to work on free trade and avoid the protectionism that has come alive politically across the globe. We think July may still see the Euro turn up a bit; however, data being stronger in the U.S. can diminish these chances of appreciation.
The Pound slid to a 10-month low even as Prime Minister Theresa May managed to survive a Conservative pro-Europe rebellion that almost saw the passing of legislation that would make the U.K. be in a customs union with the EU by default if no Brexit deal is agreed upon by the March 2019 deadline.
Also, Consumer Price Index figures came in less than forecast. We see no real great reason for Sterling appreciating and feel that May’s time could be running out as she just keeps rolling on with a strategy that carries a razor thin margin of majority support in parliament.