The U.S. Dollar is closing the week almost 1.0% stronger after data and commentary helped fuel chances of a hike by end of the year. According to the tracking by the Bloomberg Dollar Spot Index, the greenback improved primarily mid-week as other major central bank decisions in Canada and Europe highlighted current policy divergence in comparison with the Fed. If anything, monetary action may be reaching its limits in impacting economic growth and forecasts cannot be upgraded unless government spending increases.
We expect more economic indicators next week to continue to paint a steady picture for the U.S. and aid the dollar sustain its gains, if not solidify its strengthening. Markit Manufacturing PMI will be released at 9:45AM today and it’s expected to show a 51.5 reading, signifying the same pace of expansion as the month prior. Equity markets are in the red, showing losses globally, and depreciating currencies against USD all across the board.
The havoc of political infighting in the U.K. continues to inflict pain on a currency now down by over 22.0% since the infamous June 23rd referendum. Lawmakers continue to criticize the Bank of England’s handling of monetary policy ever since the Brexit and a wider deficit in Britain’s budget leaves few options for the Chancellor of the Exchequer Phil Hammond to cope with the separation’s woes.
The month of September proved to be disastrous for the U.K. economy and October has charged a heavy toll on GBP. These are historically low levels with potential for further losses if there is no resolution for Britain to have any part of Europe’s single market prior to invoking Article 50 of the European Union agreement. The divorce will be so tough; it’ll make ya head spin.
The Euro continues to dwindle as markets price-in little chance of changes to the European Central Bank’s accommodative policies. Officially, the ECB announced that it will maintain its current quantitative easing program intact and plans to execute in full as planned until March 2017. No extension was discussed, but also no tapering.
We are now experiencing the downfall of the shared currency as everything from Brexit to banking crises finally caused downward pressure. There is uncertainty over the future of the EU and its members’ ability to keep selling open markets and borders to their constituents. We foresee these ranges to stick around, if not get better for purchasers of Euros.