The U.S. Dollar recovered overnight and improved this morning following the release of better than expected Durable Goods Orders. Wednesday afternoon represented a significant losing moment for the buck as it fell to its weakest value since May of 2016 as measured by the Bloomberg Dollar Spot Index because of market reaction to the Fed announcement.
Surprisingly, the FOMC statement, which had no press conference to elaborate further, explained that members want to unwind the balance sheet soon by selling bonds purchased during QE, but this did not boost the dollar. As expected, there was no hike, but perhaps recent poor performance in indicators have convinced market participants that nothing will happen until December.
There are concerns that the greenback is weakening rapidly and it’s on pace to erasing all its gains since 2014, propelled back when the Fed decided to start tapering its quantitative easing program. We believe any buyers of currencies should take advantage any time a piece of data aids the dollar since the 2014 momentum the dollar experienced is now on the side of the Euro. We’ll see if tomorrow’s slated figures from GDP to Personal Consumption help any further.
The Euro is now trading around its strongest levels since the start of 2015 and could solidify its appreciating status if data out of the Euro-zone on Friday delights spectators. CPI figures coming out of many places, including Germany, will be closely watched as well as confidence measures for the whole bloc.
Already Ifo Business Climate surveys in Germany look great while unemployment in Spain fell to its weakest level since the beginning of 2009. With the biggest of the original P.I.G.S. on the rise, we can realistically expect any other stellar data causing further appreciation of the shared currency.
The Pound was the exception in the dollar’s minor recovery, pushed upward as a result of strong Retailing Reported Sales by the Confederation of British Industry. Manufacturing is lagging in the UK and GDP showed us there is a slowdown, but people are buying things.
In this strange imbalance, it is possible Sterling has room for falling in value since the Bank of England meets next week and their announcement may be characterized by concerns over Brexit effects, negative ones, on the economy. Once it is established that the BOE cannot mess with the accommodative environment while negotiations continues, the lack of interest-rate hiking will likely sink the Pound. For now, the “quid” keeps hanging on.