The U.S. Dollar is trading in familiar ranges after a busy week highlighted primarily by political headlines.
Currently, markets are watching for the potential of another exit in the administration as reports claim that national Security Adviser H.R. McMaster may be leaving today. The revamp is seen as a potential destabilizer of the greenback. Per the Bloomberg Dollar Spot Index, the buck has lost almost 1.0% of its value thus far this month.
We look forward to a very active week of FX flows next week as we expect a summit on Brexit to produce plenty of noise and the first FOMC meeting headed by new chair Jerome Powell. Additionally, the Bank of England will meet and Governor Mark Carney’s take on the current environment, which has seen some signs of a slowdown, will be carefully digested.
The Yen improved by 1.2% this week following the decline in stock indexes globally. Risk-aversion is once again pushing the Yen towards the best levels since November 2016. We strongly believe that the Bank of Japan’s stance on maintaining some easing measures will keep the Yen from truly appreciating as much as it could in the short-term, but by the end of the year we see it closing as one of the best performers.
The Pound recovered half a percent of its value throughout the week following tumultuous diplomatic activity. The ouster of Russian officials from the U.K. has started a war of words and created tension in an already chaotic European theater.
Additionally, British negotiators will need to sharpen their pencils as next week will be crucial in determining a path toward a trade deal or no trade deal. The European Union is making it very clear that this process is becoming convoluted because of the dissidence within Prime Minister Theresa May’s party and even cabinet. We foresee trouble for Sterling before the month comes to an end.