The U.S. Dollar is trading in familiar ranges coming off a week of advances primarily caused by growing hawkish sentiment that the economy is in a good enough place for the Fed to hike rates before 2017. More importantly, other regions are coping with lag in growth and face serious political uncertainty, such as the European Union and most definitely the United Kingdom. Overall, the greenback has been on a rally all month long, improving by 2.0% for October thus far as measured by the BDXY.
A few speeches today and the manufacturing Purchasing Managers Index are slated for later today and could move the dollar further up in value. Fed Governor Jerome Powell and other regional presidents from New York, St. Louis, and Chicago will make statements at different gatherings as the day progresses.
The Pound is running into further trouble this morning following threats from major banks that they will indeed leave the UK prior to article 50 being invoked. The separation from the rest of the EU is an unpleasant prospect for financial institutions which are not willing to tolerate working inside a country without access to Europe’s single free market.
Banks abandoning Britain at this time would be short of catastrophic in the midst of an already difficult budget where the Chancellor of the Exchequer is desperate for more revenue and would be left without major contributors from the finance sector. Lending is at dangerously low levels after Brexit and not to mention what it would do to unemployment. Pound is still vulnerable to further weakness unless Prime Minister Theresa May makes a miracle happen.
The Euro remains on a downward trend and is 3.2% weaker for the month of October. A slew of data to end the month will determine how depreciated the Euro goes into the final weeks of 2016. An Italian referendum to define constitutional powers, banking issues, and political turmoil will not cease to add pressure on Euro as we close the year.
The ECB’s determination to maintain an accommodative approach towards economic intervention will keep the dollar higher in the short-term.