The U.S. Dollar is trading in weak ranges following a truly disappointing week, tumbling to a seven-week low on the basis of weakening fundamentals. Indeed, the Bloomberg Dollar Spot Index has fallen by 2.4% since mid-July after Producer Price Index and Retail Sales figures revealed unexpected contraction.
The drop in economic data helped lower the chances of a Fed hike for what remains of the year, with odds at 45.1% for the December meeting. It is clear to the Fed that there is inconsistent growth at the moment and that certainly the situation may not merit any increase in borrowing costs until 2017. FOMC minutes coming up Wednesday may elaborate on the Fed’s thinking, which is likely to convey a dovish rate outlook.
CAD is trending upward with the rise in oil prices as of late. The “loonie” is up 2.0% thus far in August, currently at levels last seen a month ago, after OPEC members discussed reviving talks of curtailing production. The International Energy Agency also came out last week stating that demand will rise and inventories could fall towards end of the year. Consequently, MXN is also on big recovery mode, strengthening by 4.5% this month after its central bank also refrained from lowering its benchmark borrowing rate.
The Pound continues its losing streak, already down by 3.6% in August following statistics proving the damage caused by the Brexit decision and build-up to the referendum. The Services and Manufacturing sectors are contracting and housing values are worrisome for major banks holding on to debt associated with it. Market observers will pay particularly close attention to the Inflation data to be released tomorrow.
Consumer Price Index is expected to register a 0.5% expansion and any failure to reach such a low estimate will likely sink GBP further. Homes for sale are staying in the market for longer periods and the pension fund is ballooning up, causing anxiety amongst young Brits who mostly despised the Brexit result. GBP may be lower on political instability down the line as negotiations and details over them frustrate the electorate.
The Japanese Yen gained although the Japanese economy grew at a much slower pace than anticipated in the second quarter. Gross Domestic Product numbers signaled a measly 0.2% rate of growth, reading way under the forecast 0.7%.
The Bank of Japan has refused to add aggressively to its already accommodative monetary policy while fiscal spending plans, once deemed to be significantly large, will not be as generous as previously discussed by Prime minister Shinzo Abe. The International Monetary Fund is asking Japan to radically change its approach to aiding the economy by pushing for higher employee wages, reduce taxes, and increase prices.