Daily Market Update

U.S. Dollar Begins Week with Momentum, Ahead of Data-Heavy End to September

September 25, 2017

The U.S. Dollar is trading in more favorable ranges against most currencies to start the week, with the exception being the British Pound.

USD

The U.S. Dollar is trading in more favorable ranges against most currencies to start the week, with the exception being the British Pound. Elections in Germany over the weekend pushed down the Euro as Chancellor Angela Merkel starts her fourth term with the inconvenient need to form a coalition in order to govern without any issues and especially to combat a rise of popularity of right-wing politics.

On the other hand, U.K. Prime Minister Theresa May’s speech damaged Sterling throughout Friday, but the bleeding stopped as consensus grew that the idea of a 2-year transition post-Brexit would be acceptable.

Currently, the greenback has sustained some gains from the optimism displayed by the Fed last week, but this week will be a true test of economic performance indicators. Housing, confidence, durable goods, income, and gross domestic product are all going to be at play. Strong figures could further solidify the Fed’s determination to stick to its 3-hike plan this year but, stagnation or underperformance will cast doubt and easily sink the buck. USD rallies have been short-lived throughout 2017.

 

EUR

The Euro fell near its weakest level in a month following a German general election in which far-right candidates won more seats than predicted. Without much surprise, Angela Merkel won a fourth mandate, but her Christian Democratic Union did not win enough seats to reign without a coalition.

They have two options: deal with the Social Democrats or the minority green parties. Either way, the Bundestag now must deal with the fact that they must govern among anti-establishment right-wingers for the first time since 1949.

The German elections may be a sign of anti-EU parties being capable of surprising elsewhere down the line. Most political downside risks that could negatively impact the Euro may be gone for this year, but we shall see if there is vulnerability in 2018. Business expectations are down in Germany per the IFO current assessment survey.

 

GBP

The Pound is down in comparison to last week after Prime Minister Theresa May’s speech in Florence failed to address issues regarding Brexit with clarity of details. It seems like over the weekend, analysis led to many agreeing that while lacking any specifics, May touched on the topics of immigration, business confidence, and the need for individuals to get accustomed to an independent Britain.

Negotiations were supposed to restart today, but they have been pushed to October. Housing figures and GDP will hit the wire this week, while already many economists are downgrading their outlooks for wage growth.

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