The U.S. Dollar fell by the most since March throughout yesterday’s session as a result of underwhelming inflationary growth and a negative outlook on the geopolitical front in terms of leaving the Iran deal behind.
The new dynamics of global leadership may be a short-term dollar issue since many are trying to figure out what other agreements the U.S. administration may choose to abandon. NAFTA is now in the cross-hairs, but that may not be a big news item until next week.
Ultimately, the momentum the greenback was riding has now faded a bit, but issues elsewhere in Europe as well as the U.K., will keep it swimming around levels that are the best of the year. Again, we must recognize that U.S. Dollar rallies have their moment, but it’s been proven to be short-lived throughout this year. The buck has still managed to erase most losses seen in months prior to May.
The Euro returned to appreciating following news of ongoing cooperation between EU officials and Iran. Most countries that worked on the deal are committed to the terms and this image of renewed diplomacy has benefitted the shared currency.
Regardless, issues remain in Italy and no government in the third largest economy of the EU bodes poorly for any long-term economic stability. If Italy becomes a bigger problem, could the European Central Bank have to step in Greece-style to help? The country’s debt represents 132.0% of its GDP, owing more than it produces as a whole entity.
The Pound stayed around its worst levels in four months despite recovering almost half a percent of its value, which was initially lost as the Bank of England decided to not hike. Furthermore, doubts over tightening in 2018 are diminishing. The bad-dollar news is what may help Sterling see an uptick in the next week or so, but we see continuous downward pressure on the currency for the next six months.