The U.S. Dollar weakened all day yesterday and continues to lose ground today after news from the Davos Economic Forum that U.S. officials are encouraging the greenback’s misfortunes.
Indeed the message is quite clear: the administration believes that that a dollar on the decline is a positive development for the economy as it aids in combating the current-account deficit.
As it pertains to President Trump’s economic agenda, the weak USD is a source of comfort since it validates his views and previous statements. Naturally, the beloved tender is down, yield on treasury bonds are up, and some traders are concerned about the length and depth of potential dollar losses. The strong-dollar policy the U.S. has encouraged since the 1990s seems out of the window.
There is still important data in the form of Gross Domestic Product and Durable Goods Orders on Friday. The GDP figure is expected to reveal a 3.0% quarterly growth, which would mark the third consecutive quarter of such a strong pace. We shall see if the dollar recoups anything from a good performance in indicators or sinks further with evidence that economically the dollar deserves little credit.
The Euro climbed to a fresh new high, best level since mid-December 2014 as the dovish Davos dollar commentary made headlines and the European Central Bank met to keep things unchanged. Nevertheless, the press conference is going on at the time of writing and only aiding the shared currency further.
ECB President Mario Draghi has explained that the economic growth being experienced is not just strong, but “robust,” putting emphasis on the fact that numbers have certainly satisfied in the Euro-region. Worth noting, Draghi criticized U.S. Tresury Secretary Steve Mnuchin for basically violating the G-20 rules of FX engagement: you’re not supposed to talk down your own currency and promote its devaluation.
The Pound remains on the up-and-up, making headway towards reaching levels last seen when the U.K. was still considered part of the EU. There is optimism behind conversations regarding Brexit, although things remain unclear.
More importantly, the labor market is solid and the figures yesterday stopped a losing trend in job creation that had lasted three months. Overall, Sterling is ignoring downside risks and the U.S.-dollar narrative at the moment is only a driver of further appreciation. We believe these levels are here to stay at least in the next six months.