The swings have been such this week that per the Bloomberg Dollar Spot Index, the U.S. Dollar is right back to where it started on Monday.
Trade tensions easing on some fronts such as North America have shaken the Mexican Peso and Canadian Dollar, initially aiding their appreciation. However, the deal between the U.S. and Mexico has been criticized because it made little sense to business leaders and investors that Canada was included afterward. The frantic nature of negotiations has moved the currencies within a 2.0% range band to close August.
The Oceanic currencies of Australian Dollar and “Kiwi” (NZD) are down by over half a percent on concerns that an additional $200 billion dollars in tariffs will be imposed on Chinese goods. As intertwined as their economies are with China, New Zealand and Australia cannot deal long-term with barriers to trade that affect their sales of raw materials to the world’s second largest economy. We foresee a tumultuous September when the dollar will likely maintain strength based on solid economic indicators.
Inflationary growth in the Euro-zone remains subdued as German Price Index figures came in lower than expected. The largest economy in Europe facing unimpressive expansion in indicators is starting to be interpreted as a sign of lag in the region.
It is possible that the European Central Bank will take this into consideration as they ready to finish off all quantitative easing while holding back from initiating speculation of hiking interest rates, which right now seems like the economy could not handle. This all plays out as a Euro-negative along with political concern over Italy’s plans to expand fiscal spending in a big way.
The Pound climbed by 1.0% this week as the U.K. prepares to deal with challenges for the last third of 2018. Brexit officials explained that they see October as an unrealistic deadline for a Brexit deal. Nevertheless, talks are ongoing, open lines 24/7, and even Michel Barnier, EU’s chief negotiator, has complimented the improved pace of deal-making. It is possible the Pound finds some support if Prime Minister Theresa May is able fend off opposition within her party as she works with a more cohesive cabinet.