The U.S. Dollar is trading in positive ranges this morning, building on its strength as a result of solid economic data leading up to the Fed meeting and the European Central Bank’s decision to be more accommodative. Policy divergence is once more a driver of USD appreciation as struggles in Europe force the ECB to extend its quantitative easing program. Currently, the greenback is on a half percent rally against most of its major peers.
The mighty “buck” is also again correlating in tandem with rising equity markets, which welcome the news of further help from a major central bank. Although the dollar is enjoying benefits now, many analysts are concerned the tide may turn if anti-trade talks begin to take hold of policymakers and businesses that will shoot for a weaker dollar moving forward to increase exports out of the U.S.
The Euro fell rapidly this morning as a result of a dovish ECB that agreed to extend its QE purchases through all of 2017. Euro-zone growth continues to be anemic while some fundamentals such as unemployment and inflation are improving. However, it just isn’t enough and moving forward the ECB will likely reconsider increasing how much they buy.
It is also crucial, per Draghi’s conference statements, that fiscal policy matches the ongoing efforts by monetary officials. There is a lack of spending hurting Europe because of the austerity measures many countries implemented to avoid defaulting on debt after the 2008 crisis.
The Pound recouped losses from earlier this week as good housing data came in to show that the fundamentals of the UK economy have not been severely altered after the Brexit vote. House Prices exceeded expectations and the flexibility that some formerly anti-EU parliament members are now showing is changing the prospect of a “hard Brexit.”
Prime Minister Theresa May and other conservative figures are doing the best they can to stay part of the single free market comprising EU members. Payments would be made in order to avoid the tariffs other nations have to pay when doing business with Europe.