The U.S. Dollar improved this morning countering a week of underwhelming data in the services sector and speculation increasing that the Fed would be unwilling to hike rats by the end of this year. Boston Federal Reserve President Eric Rosengren joined in the hawkish sentiment of other Fed members recently by stating this morning that “a failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery.”
The labor market has improved to a satisfactory level after years of low interest rates and wages are steadily increasing, said the official. Chances of a hike for the September 21st meeting are up to 34.0% after being in the 22-25% range throughout the week.
Commodity markets were mostly in the red overnight, aiding the greenback recoup earlier losses against MXN, CAD, and Aussie. It is also worth noting that North Korea tested a nuclear bomb and the state-controlled media is claiming the authoritarian regime has capability to mount it on warheads. This type of global threat scenario tends to boost the USD as a safe-haven and we are witnessing that in today’s session.
The Euro is on the decline in the North American trading session following market reaction to ECB President Mario Draghi’s commentary after their monetary policy meeting. As expected, the ECB held back from expanding quantitative easing and kept its benchmark and deposit rates unchanged.
Although the shared currency initially gained to its strongest levels since the end of June, it is currently trading by over half a percent weaker. As economic growth came into question, Draghi’s statements felt pessimistic and seemed to reveal a frustration with the lack of positive impact his policies have had on anemic recovery.
Euro-zone members have seen some improvement in unemployment, especially Spain which reached its lowest level recently in over six years. However, central bank action seems to be running out of steam, with deposit rates already in the negative to incentivize banks and QE purchases at EUR80.00 billion per month. A European Union meeting next Friday in Bratislava, Slovakia hopes to revive countries’ commitment to the principles of the continental agreement, but will be the very first time since 1973 without featuring the United Kingdom.
The Yen weakened overnight following North Korea’s nuclear test and a surge in its domestic stock markets. JPY is 1.5% weaker from its weekly high reached on Tuesday. Doubts over the ability to couple monetary policy with fiscal spending is also weighing on the Yen.
The Bank of Japan will meet on September 21st and it must be noted that the currency has improved after every meeting thus far this year. Based on its account surplus and the tumultuous global economic situation, JPY has thrived as a safe-haven to gain 17.0% of value since the start of 2016.