The U.S. Dollar traded in choppy ranges yesterday as market participants digested the FOMC Minutes. It is clear that the Fed is resolute in its aim to hike rates twice more this year while keeping an eye on wages and inflation. Currently, policy divergence has kept the greenback relatively above water, but the Fed’s tools are limited when trying to push towards economic growth.
Tomorrow’s Gross Domestic Product, Personal consumption, and Durable Goods figures will paint a clearer picture of where the U.S. economy is this year and if indeed it can afford more than one hike in the interest rate. Also, the Fed is hopeful, as many other central banks, that government steps up and does its part with fiscal spending to boost progress. Odds of a hike for June 14th are at 95.0%.
Jobless Claims, both initial and continuing, came in lower than expected; once again proving the labor sector is healthy, at least on paper. With no other data out today, we’ll see if any headlines out of the NATO Summit shake the FX market as strong statements are likely from European, UK, as well as American leadership.
The Euro’s momentum has been halted after remarks from European Central Bank President Mario Draghi that certify he is not ready to consider any tightening measures. As far as his speech in Madrid yesterday is concerned, the highest financial official of the EU does not feel any pressure to change his stance, which is one of keeping the easing going until end of the year.
While German and other leaders may disagree, it is important to point out that the ECB’s efforts are paying off as the recovery the continent desperately needed has widened. Although here we are some of the more adamant analysts when it comes to worrying about the ongoing debt problems with Greece and a vulnerable Italy for the long-term, the Euro is where it deserves to be considering economic advancement despite the fiscal issues that plague the Euro-zone and serious security concerns that were once unimaginable for the region.
The Pound continues its rotten week following a downgrade to its revision of GDP growth for the first quarter of the year. Originally, the reading showed a 0.3% level of growth, but numbers reviewed revealed a slightly less productive quarter at 0.2%. Exports suffered and in general there was stagnation in other sectors.
With an ongoing investigation, political campaigning before the June 8th elections, and the dark cloud of Brexit, we foresee Sterling going down a bit in the next few weeks. Overall, we have little faith in Brexit talks resulting in a great situation for the UK and if indicators start dwindling, then more reason to believe GBP will depreciate in a big way by year’s end.