Daily Market Update

U.S. Dollar Hits the Brakes, But Trouble Remains for Europe

May 03, 2018

The U.S. Dollar held on to most of its gains overnight against major counterparts with the exception of conceding ground to commodity-based currencies after a rise in the prices of commodities following an oil surge.

USD

Following yesterday’s FOMC meeting, the buck reached new multi-month highs against many currency pairs as the Bloomberg Dollar Spot Index touched its highest point of the year.

The Fed’s assessment of the economy is consistent with expectations of more hikes coming this year. A mention about inflationary pressures initially sounded dovish to markets until further analysis concluded that “symmetrical” path to 2.0% yearly inflation is ongoing, thus a hawkish sentiment and dollar-positive.

Markit U.S. Services PMI will be released at 9:45AM while Factory Orders and Durable Goods Orders come out at 10AM. The slew of data may continue to fuel the dollar’s rise if above estimates; otherwise the greenback may see itself settle in these best-of-year ranges across the board.

 

EUR

The Euro remains under pressure as inflation in the form of Consumer Price Index failed to impress. In fact, the gauge only served as further evidence that the European Central Bank might need to stay quite cautious about removing stimulus to the financial system by increasing borrowing costs. CPI in April increased by an average of 0.7% below the forecast of 0.9%, and meanwhile, the annual average dropped to 1.2% from 1.3%. The depreciation of the shared currency may be a welcome development since it could help alleviate these lackluster indicators.

 

GBP

The Pound stayed subdued after PMIs in Services and the Composite failed to meet predictions. Markit Services PMI resulted in a survey reading of 52.8, less than the expected expansion of 53.5, while the Composite was at 53.2 vs. 53.7.

Additionally, political havoc is on the menu for the U.K. with Prime Minister Theresa May facing yet another loss to the House of Lords who held a vote against the concept of a hard Irish border. This forces May to cope with insurgency within her Conservative ranks and things are lining up for a potential new round of general elections because of all this gridlock.

 

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