Daily Market Update

Income and Spending Do Not Impress, U.S. Dollar Hits Brakes

September 29, 2017

The U.S. Dollar lost ground against its G-10 counterparts yesterday as profit-taking and lack of faith in tax reform plans slowed the greenback’s momentum.

USD

The U.S. Dollar lost ground against its G-10 counterparts yesterday as profit-taking and lack of faith in tax reform plans slowed the greenback’s momentum. Per the Bloomberg Dollar Spot Index, the buck climbed by almost 1.0% this week, but it’s fighting to stay afloat this morning after the release of Income and Personal Consumption data.

The numbers were not stellar and some just met expectations. Income rose 0.2% as estimated, but the prior month’s figures were downgraded. Additionally, Personal Consumption Expenditures rose only 0.1%, failing to meet its low 0.2% growth target. As of time of writing, the main currency to appreciate as a result was the Euro by almost half a percent.

Overall, it seems like the greenback will be able to finish off the month better than when it began. The upbeat commentary by Yellen, some economic indicators showing progress in production, and a tumultuous political situation in Europe have all added up to improve the dollar’s standing. It is prudent to say that the third quarter of the year will be full of volatility stemmed from geopolitical woes as well as changing dynamics in trade relations. Hopefully there are fewer headlines about potential for conflicts.

 

EUR

The Euro fell by 1.3% thus far this week, primarily based on fears that German Chancellor Angela Merkel will have a difficult time in her fourth term as leader of the EU’s largest economy. Experts have been evaluating the possibilities of a change of the guard in Europe as it relates to who will be the go-to leader now that Merkel will need to focus on domestic stability in order to govern smoothly.

Emmanuel Macron, France’s recently elected president, hopes that then EU can be more integrated and even fiscally interdependent. However, the Euro is suffering from the fact that democratic success by anti-establishment parties, such as Alternative for Germany, could become obstacles to implementing such global-minded policies.

Spain indeed has a worrisome scenario to deal with over the weekend that could stifle progress made in the EU’s fourth largest economy and serve as further proof that there are separatist movements with popularity that cannot be ignored across the continent.

 

GBP

Sterling declined by 1.2% during a week in which Brexit negotiations revived worries regarding the future of bill settlement and a transition period for businesses to accommodate for economic anxiety over the separation. Thus far, UK officials have failed to impress their EU counterparts, once again striking a tone of disagreement when it comes to what aspects of the talks to prioritize.

More importantly, the UK’s deficit continues to be a drag on Gross Domestic Product, which slowed down year-on-year from 1.7% to 1.5%. The quarterly figure came in just at 0.3% as estimated, showing that there is little to be proud of on the other side of the Atlantic. The Bank of England may be set to tighten monetary policy, which proved beneficial to the Pound in September as “Cable” climbed 1.7%, but we believe the economy is under pressure and it will weigh on the currency as the year closes.

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