The U.S. Dollar suffered losses across the board yesterday after disappointing services data shocked markets. According to the Bloomberg Dollar Spot Index, the “buck” fell by 1.0% overall, hitting a multi-week low against 10 major currencies. As long as economic indicators continue to fall below expectations, odds of an interest rate hike by end of 2016 will continue to falter.
Chances of a rate increase at the December meeting now stand at 50.0%. Nevertheless, some members of the Fed feel action needs to be taken. San Francisco Fed President John Williams stated that the economy is robust and inflationary targets are likely to be reached within a year.
The Beige Book is the main domestic event of the day at 2PM and we will pay attention to Bank of Canada’s rate decision at 10AM as well as Bank of England Governor Mark Carney’s comments at 9:15AM to defend monetary policy measures in front of Parliament. He is expected to get grilled by pro-Brexit members, should be fun.
The Euro rose by almost 1.0% against the dollar following the release of the ISM Non-Manufacturing Index yesterday morning. The shared currency is now trading around its strongest level in two weeks, but may face some pressure today ahead of the European Central Bank meeting tomorrow. Many economists surveyed expect Draghi to sound dovish about the forecast for Euro-zone growth considering the downside impact of the Brexit.
Negotiations between the EU and UK have not started, but it is already believed that the stimulus packages offered by the ECB thus far have been insufficient in boosting the economic recovery. Politically, as seen in the G-20 summit, many member nations are facing strong anti-establishment opposition parties which are slowly gaining seats. The sentiment of an abandoned populace is manifesting at the polls and breeds uncertainty over a more open and unified European economy.
The Yen is gaining once again on lowered likelihood of a Fed hike and the Bank of Japan’s lack of willingness to expand it easing policy. A report from the Sankei Newspaper in Japan highlighted that members of the BOJ are finding it very difficult to agree on a comprehensive monetary reform to stimulate the economy and are likely to once more leave current policy unchanged, much to the dismay of exporters and USD-bulls.
Last month, Prime Minister Shinzo Abe promised to increase government spending to improve the country’s infrastructure, but the amount was not as high as previously discussed. Monetary and fiscal policy discoordination is keeping the Yen afloat while its stock market dwindles.