Daily Market Update

U.S. Dollar returns to gains after Fed hike

September 27, 2018

The U.S. Dollar improved following yesterday’s positive tone from Federal Reserve Chairman Jerome Powell as he spoke to the press after the Fed announcement.

Overview

Powell’s assessment established what we knew, that indeed the economy is strong and that there is no need to maintain an accommodative approach. Nevertheless, the dollar did not sky-rocket right off the bat, but gradually climbed overnight and this morning as a result of mixed news in Europe and stellar indicators released for the U.S.

Gross Domestic Product’s final reading for Q2 proved that the economy expanded at 4.2% quarterly, but the big surprise came in the form of Durable Goods Orders rising by 4.5% in August when only 2.0% was expected. Additionally, the prior month’s original contraction of 1.7% was upgraded to 1.2%.

This is a major sign of long-term investment from consumers and companies on bigger items. We believe that the greenback will not plummet and certainly not against most counterparts, but as we get closer to December, the Euro could rise as the European Central bank removes quantitative easing measures and considers hiking rates in the Fed’s style.

EUR

The Euro dropped by about 100 points since the start of the FOMC meeting in the U.S., but has a bit of silver lining that could pay off dividends later. German inflation is growing per Consumer Price Index for the nation that showed better-than-expected figures at 0.4% over the estimated 0.1% for September. This may give ECB officials something to savor as they prepare to stop sovereign bonds purchases, thus completely ending their QE program by December.

However, they must also concern themselves with the Italian budget battle that is stagnating progress in the EU’s third largest economy. Financial ministers in Italy are struggling to convince Five-Star Movement and Northern League leadership that the deficit should be kept at or below 2.0%. Deputy Prime Minister Matteo Salvini stated that numbers matter less than the right of Italians to work. The chaotic situation may not be solved quickly, but we cannot discount surprises.

CAD

The Canadian Dollar is trading in mixed ranges as traders struggle to find direction for a currency highly volatile in the middle of negotiations that appear to not be going well. President Donald Trump shocked many speaking at a press conference that addressed a variety of topics, including NAFTA.

When it came to questions about progress with the pact’s Canadian negotiators, the President did not hold back his frustration and said that while he loved Canada, he was not thrilled with the principal trade official Chrystia Freeland. Clearly, anything moving forward that further risks the pact not being signed is a negative for the “Loonie,” so if any resolution happens, which would be sudden and surprising, the Canadian Dollar shall rise.

 

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