The U.S. Dollar is mostly improved after a week of risk-aversion throughout global markets and downside risks that are finally manifesting themselves. The Bank of England’s meeting concluded in the major central bank admitting that more will need to be done to spark the economy and signaled to the rest of the world that accommodative measures will remain in place for a long time.
Indicators in the UK, the Euro-zone, and the U.S. revealed a picture of unbalance in the industrialized nations while commodity prices floundering downgraded prospects for everyone else. CPI today showed a better expansion than expected, yet Retail Sales had a very poor showing yesterday. In this environment of global uncertainty, the greenback is thriving as a safety asset to hold on to.
Japan’s lack of direction and speculation over its willingness, or lack thereof, to stimulate the economy further, has not negatively impacted the Yen. JPY, as much of this year, remains strong as a result of dysfunction in resource markets and lost faith in emerging stock indexes.
The Euro remained in familiar ranges throughout this week after slowly, but surely falling to the dollar in the midst of growing concerns over the overall political and economic health of the European Union. Policy divergence, as compared to the Fed, has played a small role as well since it seems very unlikely the ECB will be able to tighten its policy anytime soon. Since the middles of last week, EUR has dropped by over 1.0% in value.
Today in Bratislava, the European Union is holding its first summit without the presence of the United Kingdom. If the world has forgotten, this meeting serves as a reminder that indeed Britain voted itself out without a tentative plan of action and there are more questions than answers about how negotiations for the full exit will go.
Despite some inflationary growth as CPI was released yesterday, German Chancellor Angela Merkel offered some strong statements about the dire state of the EU and its fragile political environment. “It’s a matter of war and peace,” said the official while adding, “I, for one, will never relent in pushing for a common Europe.”
The Pound continues to dwindle as traders weigh the chances of the BOE lowering interest rates near 0.1% by the end of the year. Although post-Brexit economic figures have eased fears of an imminent recession, the fact that BOE is openly speaking about cutting borrowing costs is a major policy stance turnaround. Prior to Brexit, the BOE was the only major central bank seen with the ability to hike rates just like the Federal Reserve.
However, the surprising twist of Brexit has thrown policy up in the air and the BOE is on a reactionary approach, carefully determining what needs to be done to avoid a financial disaster. GBP is now 2.3% weaker since September 6th.