Daily Market Update

U.S. Dollar Much Weaker Because of Trade Uncertainty

March 26, 2018

The U.S. Dollar relinquished further ground to its counterparts across the board as the Asian trading session punished the buck for concerns over new trade barriers.

USD

The U.S. administration has been on the defense as world leaders question the country’s new stance with China and wonder if they will be exempt.

Any issues that affect free commerce or could bring instability to trade are certainly negative for the greenback and this trend will not likely change in the next few weeks. Per the Bloomberg Dollar Spot Index, the currency fell by another 1.1% last week as headlines overshadowed an interest rate hike.

Markets remain very cautious after the rout experienced by the tech industry because of the Facebook leak scandal. We shall see if somehow investors reward the U.S. economic outlook, which looks good on paper, and the dollar experiences a positive correlation if markets recover. Swings are the theme of the year after all. If trade remains the dark cloud over everything, expect only a continuation of what we saw last week and a weak close for March. There will be Gross Domestic Data and other items to digest.

 

EUR

The Euro climbed by almost 1.0% against the buck last week regardless of underwhelming data and pessimism over the political stability of Italy. Disappointing Purchasing Managers Indexes and low confidence still could not cause much harm to the shared currency and now there are reports of a coalition building in Italy, but not a clear one.

The far-right Northern League, which is highly anti-establishment may join forces with the Five Star Movement, a party with elements all over the political spectrum, but determined on overthrowing the status quo. Because of past references to leaving the EU, some analysts are showing worry that this political force may put a lot at risk. We believe Euro may stay afloat in the near-term as the dollar pays the toll of changes to trade dynamics.

 

GBP

The Pound is trading at its strongest levels since the start of the year, following a week of dollar depreciation based on trade concerns. However, Sterling’s resilience is remarkable since a summit in Brussels last week left doubts over a trade deal once the U.K. leaves. Leadership on both sides agree that a transition is necessary and achieving consensus on it has been a good development, but far more needs to yet be accomplished.

We are not buying many arguments in favor of Pound, but we cannot ignore that the fundamentals of the U.K. economy have yet to crumble and with the backing of the Bank of England from last week, the Pound has enough reasons to not plummet regardless of Brexit effects and anxieties. The next three months will be crucial as there is a deadline prior to a summit in the summer for achieving trade parameters and the solution to the Irish border, if it stays as is or not.

 

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