The U.S. Dollar is much improved after President’s Day weekend based on higher likelihood of the first interest rate hike of the year happening in March. After some hawkish commentary from Fed officials such as Philadelphia Fed President Patrick Parker and good performance in key economic indicators like Retail Sales, the chances of a Fed Funds Rate increase in March are up to 40.0% from just 30.0% a week ago.
The Bloomberg Dollar Spot Index is up 1.4% thus far in February, meriting the surge because of strong economic performance, policy divergence, and ongoing speculation that big fiscal expenditures on infrastructure will be boosting the economy as soon as plans are laid out by the administration.
The Purchasing Managers’ Index will be out at 9:45AM and we shall see if this figure further solidifies the case for rate hikes soon. The European equivalent was released and surprised with positive momentum, yet EUR is down, which means we will monitor if the spotlight will be focused on our numbers and if able to beat estimates, boost the dollar higher.
The Euro fell as it has throughout most of the month, already 2.4% weaker than January 31st. Brexit concerns, the prospect of tough and radical political elections, and policy divergence are keeping the shared currency in check. However, there is some room for optimism As the PMI reading represented the best in almost six years. Germany and France were the primary drivers of the good survey, which means that the top two economies of the bloc continue to formidably carry the monetary union’s recovery.
QE by the ECB has worked regardless of all the political noise holding the entire airwaves and headlines hostage. Nevertheless, fiscal problems abound member nations and major banks such as HSBC are losing business, which causes concerns for the long-term economic outlook. We feel EUR will stick in these ranges for what’s left of the month, swinging downward if further doubt casted by dovish statements.
Pound Sterling has been sliding, down by over 2.0% in February. Although political hurdles are being overcome by Prime Minister Theresa May, the potential damage of separation still weighs on the “quid.”
Banks and companies have promised to reduce employment in the UK if not completely remove themselves from London and other British centers. Bank of England Governor Mark Carney is meeting with the Parliament’s treasury committee, a bit of a drag on Pound since there is serious disagreement between the central bank and the legislature on where the economy is headed.