Daily Market Update

U.S. Dollar Reverses Gains as Pound and Euro Climb Back 

May 31, 2017



The U.S. Dollar is trending in weaker ranges this morning despite underwhelming data out of Europe and renewed uncertainty over politics in the United Kingdom. European markets flourished as they come to a close although inflation numbers from Germany and the Euro-bloc as a whole grew less than expected at 1.4% under the estimated 1.5%, and lower than the desired 2.0% target by the European Central Bank. This slowdown would help ECB President Mario Draghi’s argument to maintain easing as a tool to help the continent, but the Euro is not declining as you would expect off of policy divergence with the U.S. Fed.

Similarly, Sterling has held strong after new polling, using less traditional methods, showed that Prime Minister Theresa May’s Conservative Party could lose a majority in parliament. Britain is coping with insecurity as well as economic concerns revolving around Brexit. Nevertheless, both the Euro and the Pound are within less than half a percent from their highest levels of 2017.

There are no major indicators out for the U.S. until tomorrow even as Chicago PMI and Home figures are slated for release today. Against commodity-based currencies, the greenback is likely to gain if oil prices continue to drop and dragging along other resources such as metals.



The Euro is up after mixed data that revealed improvements in the labor market, but inconsistency in inflationary growth as well as consumption. Germany in particular surprised with contraction in their Retail Sales and Italy continued its black sheep status as it experienced monthly deflation. Meanwhile, the unemployment rate for the Euro-bloc fell to 9.3% from 9.4%. The figures certainly leave many traders pondering if the ECB can indeed afford to start tightening its monetary policy.

On Monday, ECB President Mario Draghi spoke to lawmakers in Brussels about the need to maintain a cautious approach that remains open to intervention. Quantitative easing is working, even at a lower level, but cannot be forgotten altogether after this year when it’s scheduled to end. Long-term, this could weigh on the Euro, but traders are commenting that there is safety in investing in the EU considering the progress made in the past two years. Greece and Italy are dark clouds along with Brexit, which we believe will eventually negatively impact the value of the Euro significantly.



The Pound’s resilience is remarkable as doubt builds over PM Theresa May’s ability to consolidate power. A YouGov poll, which conducts surveys differently from other sources, found that the Labour Party is closer in popularity to the Conservative Tories than previously thought.

The projection they came up with for the June 8th election would mean the ruling party would lose their majority, which is exactly what Theresa May wants to avoid and confidently believes will not happen. The call for the snap election is meant to be a power move to guarantee that whatever “Hard” Brexit strategy they bring to the EU would be law of the land. This new worry adds to volatility for the Pound, however, we are yet to see the negative effects against the dollar.

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