The U.S. Dollar is up across the board based on confidence in the economy and the establishment of policy divergence as we close the year.
It is clear after last month’s heavy central bank schedule and yesterday’s meeting by the Reserve Bank of Australia that the U.S. economy is the only one healthy enough to withstand higher borrowing costs. The RBA chose to stay put and signaled rates will remain low for months. More importantly, mixed data in other regions weakened their local currencies.
Oil prices surged to their highest level in 28 months, following disruption in markets over the corruption probe in Saudi Arabia, which came after the country also made strides in convincing OPEC countries to maintain production cuts for longer. Lately, there’s been a disconnect between petro-currencies and the price of oil and the negative correlation continues. Equity markets keep reaching record highs and the greenback seems to benefit from the optimism.
The Euro fell further this morning after the release of Industrial Production and Retail Sales indicators with varied results. German industrial output contracted worse than expected at (-1.6%) below the expected (-0.9). Meanwhile, Retail Sales sky-rocketed in Italy by 3.4% when only half a percent pace was forecast. As a whole, the Euro-zone’s Retails Sales grew by 0.7% in October, adding to the average 3.7% pace for the year.
Furthermore, a slew of PMI surveys in the retail sector expanded less than the month prior. The fundamentals of the European economy are in no way under threat, but the mixed data does give credit to the European Central Bank for remaining cautious and delaying interest rate hikes. This naturally bodes poorly for Euro as low rates make it less attractive as an asset to hold onto.
The Pound remains in sensitive ranges as developments in the UK political theater unfold. Prime Minister Theresa May and her main rival from the Labour Party, Jeremy Corbyn, spoke yesterday to the Confederation of British Industry leaving a poor impression. PM May continues to fumble when it comes to specifics that would ease the concern among business leaders about Brexit proceedings and a finalized deal.
On the other hand, Corbyn’s enthusiasm regarding the nationalization of industries did not hit the right note with anyone in the audience. Unhappy Brits make for a weakened Pound and the story may not change much in upcoming months.