Daily Market Update

Dollar benefits from economic and political pressures in Europe

October 18, 2017

The U.S. Dollar is trading in favorable ranges following a slew of poor data figures out of Europe and the United Kingdom.

USD

The U.S. Dollar is trading in favorable ranges following a slew of poor data figures out of Europe and the United Kingdom. Domestically, the U.S. economy is showing signs of steady confidence while underwhelming inflation and slow wage growth on the other side of the Atlantic, are negatively impacting the greenback’s main counterparts. Equity markets continue to flourish as the Dow Jones hit another record high with gains in pharmaceuticals and financial companies based on renewed faith in passing of healthcare legislation and corporate tax cuts.

Indeed the buck is enjoying a positive trend with the Bloomberg Dollar Spot Index already up 3.0% in the past four weeks. Political pressures mixed in with uncertainty over monetary policy elsewhere are to thank for the recent dollar strengthening.

President Donald Trump is hoping to decide on whom runs the Federal Reserve before he takes off for an Asian trip on November 3rd. Current head Janet Yellen will have a chance to defend her position in an interview tomorrow at the White House. Any signs of a shift could have an effect on the dollar and we will monitor it.

 

MXN

The Peso mounted a comeback yesterday after worries over NAFTA negotiations faded. Ongoing talks between Canada, the U.S., and Mexico have been intense while the dark cloud of potential abandonment of the agreement has been lurking since negotiations started. The threat of canceling the trade pact would be catastrophic to the Mexican economy and its currency has reflected that recently, falling to its lowest level in five months.

More importantly, inflationary growth in Mexico slowed down to the point that the central bank, Banxico, felt it could take its foot off the gas and stop increasing the benchmark interest rate. Anxiety over new trade terms and monetary policy divergence crushed the Peso, which has suffered 3.0% devaluation thus far in October. The resurgence yesterday came as a result of statements guaranteeing that talks will not be finalized yet and that Canada and Mexico will have time beyond 2017 to frame their demands as well.

 

GBP

Pound Sterling is down 1.7% as of mid-October based on growing pains in Brexit proceedings and the fact that wages are not keeping up with the fact pace of inflation. Prices increased 3.0% in the UK as expected, but Average Weekly Earnings only climbed by 2.2%, a cause of disappointment because it means workers have to worry about higher prices, but little improvement to their purchasing power.

On top of that, Sir David Ramsden, a voting member of the Monetary Policy Committee, said he is not ready to support a hike in rates considering the economic issues related to Brexit. European lawmakers are growing tired of the divide in opinion amongst British leadership and regardless of the Prime Minister’s recent attempts at reviving amicable conversation; talks will be postponed to December.

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