The U.S. Dollar sustained most gains from its advance yesterday afternoon that developed in anticipation of the FOMC Minutes later today. It is expected that the notes will keep the odds of an interest rate hike high although the American economy has slowed its good data roll in the last few weeks. In comparison to other central banks, the Fed is resolute in increasing borrowing costs this year and tightening is monetary policy. For many banks with resistance levels for Euro and Yen, their large orders were filled yesterday as well after rapid rise in value for both currencies in the last week.
Technical talk aside, the UK’s need to cope with critical security threats added to the “buck’s” appreciation in times of uncertainty over terror. In addition, China’s credit rating was cut by Moody’s, the first time the world’s second largest economy has its debt lowered since 1989. This development could add pressure on resource-based currencies wishing for perpetual prosperity for their biggest buyer.
PMI Composite will be out later today at 9:45AM. Yesterday’s Markit surveys showed estimated expansion in services, but slowdown in manufacturing. Existing Home Sales will also be released at 10AM, but we believe statements from European Central Bank President Mario Draghi at 9:35AM will have more of an impact.
The Euro finally slipped after orders filled in and traders put emphasis on the FOMC Minutes release at 2PM that could subdue the shared currency’s recent revival. Nevertheless, the Euro is still trading around its strongest levels in six months. Economic data recently solidified that the Euro-zone is in better shape than last year and can afford to see the ECB ease off the gas pedal when it comes to intervening to incentivize growth.
Remarks with some frustration on Euro weakness by German Chancellor Angela Merkel and her Finance Minister Wolfgang Schauble manifest that the most vibrant nation feels the ECB could start tightening. Current interest rates from the ECB (benchmark at 0.0% and others in the negative) do not reflect the strength of the German economy and the drag on Euro has to be blamed partially on policy divergence. ECB President Mario Draghi will have a chance to express his stance later this morning and we will keep an eye on signs of negativity that could sink the Euro further.
Sterling is under major stress after the awful bombing in Manchester during an Ariana Grande concert. The loss of young lives and the involvement by ISIS created a strenuous situation for security forces and the government, which declared the country on high alert. The threat level was upgraded to Critical from Severe. With all campaigning shut down and Brexit talks fading from headlines, we see a quiet session for GBP, which may depreciate further while Britain investigates and recovers.