The U.S. dollar staged a comeback rally much of yesterday and the positive momentum continued overnight. The Bloomberg Dollar Spot Index touched its weakest level since January 2015 early yesterday before rallying throughout the day.
The U.S. dollar staged a comeback rally much of yesterday and the positive momentum continued overnight. The Bloomberg Dollar Spot Index touched its weakest level since January 2015 early yesterday before rallying throughout the day. The dollar’s resistance to steady losses came on the back of not much. Global equity markets turned around early losses as tensions with Korea seemed to ease somewhat. Yesterday’s economic data proved to barely be new worthy. Nonetheless, sellers of dollars will take solace in the dollar’s turnaround.
This morning’s economic data should allow the greenback to continue its run. ADP private jobs data far exceeded expectations. The payrolls company said that private companies added 237K jobs in the month of August, beating expectations of 185K gain. Last month’s print was also upwardly revised. A separate report showed that second quarter GDP was upwardly revised to 3.0% from an initial reading of 2.6%. The print also beat expectations of a 2.7% revision. The 3% growth represents the fastest pace in two years. The strong growth can be attributed to an uptick in consumer spending, which accounts for about 70% of the economy.
After rallying to 2.5 year highs against the U.S. dollar early yesterday, the Euro has been on the defensive since mid-day yesterday and is over 1% lower. As the Euro has marched higher against the U.S. dollar for the past four months, speculation has begun to intensify that the European Central Bank may have to act to slow down the Euro’s strength. The common currency is now 14% stronger versus the U.S. dollar this year as traders believe the central bank will begin to scale back its bond purchases later in 2017. While we may see some profit taking up at these new, higher levels, the trend of Euro gains is likely to extend into the autumn which would put pressure on the EU economies. As such, the ECB’s next policy announcement on September 7th will be a major market event.
The Japanese yen is also on the defensive this morning after rallying earlier in the week as a safe-haven. The yen was the biggest beneficiary from the geopolitical instability caused by North Korea firing a ballistic missile over Japan, which caused global equities to slump. While the North Korean threat remains, equity traders shrugged it off and stocks climbed yesterday. The long list of global stock exchanges are all in the green this morning and U.S. futures point towards a higher open, putting downward pressure on the Japanese yen.