Daily Market Update

Tumultuous trade situation benefits the U.S. Dollar

October 02, 2018

The U.S. Dollar is trading at multi-month high levels against its counterparts, benefitting greatly from last week’s establishment of a good economic situation in America while the European Union and emerging markets worry about their stability.

Overview

Trade tensions eventually resulted in a revamped NAFTA agreement (Now USMCA), but Brexit, the steel tariffs and the ongoing tit-for-tat trade conflict with China still remain obstacles for other global currencies to gain any significant ground against the greenback.

Naturally though, Mexican Peso and Canadian Dollar improved to their best levels since May and August respectively. Meanwhile, the Japanese Yen is moving around its weakest levels in nine months based on equities risk-appetite flourishing.

We have no immediate data for today, but the Fed Chair will speak at 12noon in front of the National Association for Business Economics. His comments will be likely monitored for consistency with what was said at last week’s FOMC announcement when interest rates were increased.

EUR

The Euro weakened to its worst levels since end of August as Italy continues to be a problematic partner for the EU. Deputy Prime Minister Luigi Di Maio said that there will be no concessions given in regards to the increment in deficit agreed upon, 2.4%, in order to roll out the budget. EU officials recommend spending less and keeping the proposals to costs that prevent the deficit from going higher than 2.0%.

Furthermore, Claudio Borghi, head of the lower house budget committee, stated that the Euro may not be good enough to solve all of Italy’s fiscal issues. This certainly hit the shared currency hard and we believe that until this budget battle is settled, Euro will continue to struggle and potentially depreciate to more worrisome levels if the situation drags on longer.

GBP

The Pound did not see much of a break from its recent slump despite what appeared to be good news on the political Brexit front. Yesterday, it was reported that Prime minister Theresa May was ready to agree to the EU’s proposal for keeping the Ireland-Northern Ireland without a hard border. This was all in the middle of a conservative Tory party conference in which the likes of former Foreign Secretary Boris Johnson came in to try making the PM look bad in her handling of the process.

Nevertheless, cabinet members such as Philip Hammond, Chancellor of the Exchequer, ripped into Johnson, making fun of him in personal terms and ridiculing his opposition to everything. Mr. Johnson is said this morning to have talked to his allies and called for a comprehensive conservative support for PM May. Still, Sterling under pressure.

 

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