The U.S. Dollar is steadily losing ground to all currencies, except the Pound, following the release of not-so-stellar inflationary and wage growth data.
Consumer Price Index figures revealed only 0.1% expansion when 0.2% was expected for April, which has brought the average annual pace to 2.1% from 2.2%. Additionally, Average Hourly Earnings grew at a lower level than the prior month’s reading. In the midst of all that though, Jobless Claims dropped for both Initial and Continuing benefit seekers, which solidifies the strong labor market that saw a drop in unemployment last week.
Ten-year Treasury bond yields also fell below 3.0%, which has resulted in the greenback’s devaluation this morning. The recent surge in the return rate was a driver of dollar strengthening and we shall see if it is possible to have it erase the dollar’s gains thus far this week. President Donald Trump and the administration may also make statements regarding NAFTA since a deal needs to be presented to congress very soon. This could impact the buck’s momentum as well to end the week.
The Euro is rising after falling for weeks. Nevertheless, the recovery may prove to be short-lived as we move into mid-May with the possibility of a populist government in Italy. Ever since March elections, the anti-establishment Five Star Movement and the anti-immigrant Northern League parties have failed to form a coalition because of complicated alliances within parliament, even involving the scandalous former PM Silvio Berlusconi.
Investors and economists are concerned that a populist cohesive government in Italy with such factions could lead to economic policy changes and perhaps a push to abandon EU rules and standards. Euro is up, but we feel the lows of the year will remain if not drop further.
The Pound remained weak without falling too much after the Bank of England 7-2 decision to maintain rates unchanged. Chances of a hike for May dropped dramatically for weeks, but today’s cautious assessment of the economy by Governor Mark Carney and the committee highlighted the recent slowdown in economic growth and brought the odds for a rate increase in August to just 45.0%.
It is becoming clear that Brexit is weighing on the economy and perhaps the central entity can delay increments until 2019. Our forecast for Sterling is currently very accurate and our narrative of a depreciating Pound based on uncertainty over business activity is panning out. We foresee ongoing downward pressure for the currency.