The U.S Dollar is trading in favorable ranges in comparison to last week following new developments affecting faith in the Euro and Pound. Policy divergence is also playing a role in advancing the “buck” as recent commentary from different Fed figures has almost guaranteed a second hike in interest rates at the FOMC meeting on June 14. Chances of a hike are at 95.0%.
This week will be busy in terms of data with Non-Farm Payrolls and the Employment Situation the most highly anticipated figures on Friday. The expectations are low, so a NFP reading above 200K shall be good for the dollar.
Personal Spending and Income both rose and met their exact expectation of 0.4% expansion. Personal Consumption Expenditures, the Fed’s favored inflationary measure, also satisfied estimates. With focus on troubles elsewhere and potential return to good economic performance in the U.S, we feel the dollar could be up for some gains in the next few weeks.
The Euro improved by 2.4% over the course of May, benefitting tremendously from the relief felt around the continent as France elected Emmanuel Macron over the anti-EU candidate Marine Le Pen. Also, economic numbers impressed as it became clear that Germany could grow in the midst of instability and the recovery hoped for by the European Central Bank actually widened across borders. However, the shared currency could start facing some doubts as it deals with the details of Brexit talks, but more importantly, the struggles of Italy, its third largest participant.
The Italian government is voting to change party-eligibility rules and actually hold a general election before 2018. Established parties are shooting for this to pass because they feel that ongoing criticism over the bad situation in the country will only fuel popularity for the Five-Star Movement, the now more renowned opponent of the Euro and EU membership. Bank reform attempts have failed, the economy is slumping, and overall mood in the country is that things ought to change. This naturally bodes well for the dollar against the Euro in the next few months, but any slip on our side will continue to keep U.S. Dollar gains subsided.
The Pound had a very strong start to May, but has since dwindled by almost 1.0% as recent days came with negative headlines for the U.K. Aside from the terror that struck Manchester, Britain is now coping with pessimism over its Conservative administration.
When PM Theresa May announced the snap elections scheduled for June 8, her party held a 20.0% lead over the competition. Now it’s different, as that discrepancy has fallen to single-digits. The early obstacles in Brexit negotiations where the EU has looked determined to make the UK pay a heavy tolls prior to re-working trade, anxiety over big job losses down the line as companies leave, and geopolitical concerns are now weighing on Sterling.