The U.S. Dollar traded mostly flat overnight following a week of greenback strengthening as the chances of a Fed hike increased. Columbus Day week saw the dollar appreciate by 1.0%, according to the Bloomberg Dollar Spot Index. A more determined central bank commented on how recent American economic performance indicators are making a case for hiking borrowing costs before 2017.
Doubt elsewhere is also aiding the dollar’s advances. The Brexit novel is off to a rough start with political bargaining expectations between the UK and EU running low. China’s economy has been slow, negatively affecting commodity-based currencies. Oil prices are still finding definitive direction as mixed reaction to the OPEC production-slash deal is impacting forecasts. The “buck” is likely to play a safe-haven role with uncertainty in markets while also gaining on steadily improving data.
Although this morning Empire Manufacturing gauge revealed a contraction, the dollar is in familiar ranges as we wait for the release of Industrial Production at 9:45AM.
The Pound continues its downward path as Prime Minister Theresa May tries to maneuver political leverage to work on a somewhat softer Brexit. The reality of the success of the “Leave” campaign is starting to materialize: property values are down, lending is down, companies are talking about offices taking off, and grocery items are understocked.
As a result, PM May is looking to negotiate on London staying as part of the EU’s single market, which would incur an unprecedented cost for the UK if achievable. All the scrambling and contradicting statements regarding the economic separation caused Sterling to fall by about 6.6% since October started.
The Euro is trading around its lowest levels since July 26, primarily losing throughout a week where USD gained off of policy divergence. On Thursday, the European Central Bank will meet and a conference will follow to discuss the monetary decision. No changes are expected, but it is worth keeping in mind that there has been speculation over a potential tapering of quantitative easing.
Any official word on this during the week or on Thursday will surely push the Euro upward. Consumer Price Index figures today fell in line with expectations, but inflation remains at a slow pace. Opposition within parliaments across the EU remains an issue for the established order as well as banking instability. Thus far this month, the shared currency has declined 1.7%.