Daily Market Update

Dollar Drops After Yesterday’s Rally; ECB in the Spotlight

October 25, 2018

The dollar flexed its safe-haven status yesterday, reaching a yearly high as U.S. equity markets took a tumble.

Overview

The DOW fell 600 points and the S&P index is down over 8.0% on the year, representing its worst month in eight years. There doesn’t seem to be a single catalyst for the move but a trade war between China and the U.S., mixed earnings reports, uncertainty surrounding Brexit and Italy, tensions with Saudi Arabia and higher interest rates likely all played a part.

Stocks look to stem the sell-off today and the economic docket could help do just that. Durable Goods order beat estimates, registering a 0.8% gain, beating an estimate of a 1.5% decline. However, a deeper dive into the numbers show that orders for non-military goods fell 0.1%, missing the forecast of a 0.5% rise. Jobless claims did not hold any surprises. Later, pending home sales are expected to show sales were flat in September.

 

What to Watch Today…

  • Pending Home Sales at 10 a.m.

The complete economic calendar can be found here.

 

EUR

After touching a two-month low against the U.S. dollar yesterday, the Euro is in recovery mode this morning. As widely expected, the European Central Bank kept its rates unchanged. They maintained that rates would “remain at their present levels at least through the summer of 2019.” Some had argued that the central bank might tweak their language to a more dovish tilt following a slew of weak data, but they were disappointed and the Euro is rising in early trading. The ECB also said it “anticipates” an end to the quantitative easing program in December, which was also widely expected.

ECB Chief Mario Draghi is speaking at a press conference at the time of writing and we are seeing EUR/USD seesaw. So far, Draghi has sounded confident in the economy broadly but has cited risks of trade wars, Brexit and Italy as possible trip-wires for the economy.

German IFO Business sentiment fell in October more than expected, but the data is taking a back seat to monetary policy developments this morning.

GBP

Prime Minister Theresa May proved again that she may have more lives than a cat. The embattled Tory leader emerged unscathed from yet another leadership challenge after pleading her case to the 1922 committee late yesterday. As a result, the sterling has been able to climb from near a two month low against the greenback. Brexit negotiations are on hold so May may be able to hold on power throughout the end of the year.

 

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