The U.S. Dollar is trading in weaker ranges this morning following a tumultuous Tuesday in which markets seemed to panic over Italy’s political woes and the return of potential trade conflicts with China.
Currently, the greenback is staying afloat based on a positive economic situation, yet figures from this morning failed to meet expectations across the board.
Gross Domestic Product for Q1 was revised downward from 2.3% to 2.2% after the second reading while Personal consumption came in at 1.0% instead of 1.2%. Additionally, the ADP Employment Change revealed an addition of just 178K jobs when 190K was forecasted and the Fed’s favored measure of inflation, Core Personal Consumption Expenditures registered 2.3% growth versus 2.5% expected.
Clearly, the U.S. economy remains in good standing, but the stellar numbers are not there and this could weigh on the buck, which has risen at the fastest pace since 2015. We foresee swings, kind of like in March, as geopolitical events are digested along with already turbulent items such as the price of oil.
The Euro came back after falling to its weakest level in over 10 months yesterday. Based on the news, the Italian government is in trouble as parliamentary majority parties ask for the impeachment of the President and want to foment protests in Rome.
Bond yields for Italian bonds went through the roof as investors became afraid of instability while equities on their side of the Atlantic also declined based on risk-aversion. Yields go up for treasury bonds that seem volatile and risky, same as Portugal and Greece.
It seems like this is temporarily over as Europe’s stocks are back in green territory. We cannot think the Euro is at the brink of collapse yet, so perhaps we shall see some recovery in the next few days as European leaders build support around their third largest economy.
The Mexican Peso truly collapsed in April and May, falling by 10.3% in value and thus erasing all the gains that up to mid-March had made it the best performing currency of 2018. Not only is it related to the anxiety over presidential elections coming July 1st, but also NAFTA uncertainty. This has been exacerbated by comments from Canadian Prime Minister Justin Trudeau who said he’d rather have no NAFTA than a bad deal. Indeed, the trade pact seems headed nowhere concrete and could be abandoned ultimately.
Unfortunately, we see Peso in trouble for the next two quarters as these concerns on free trade will not go away and after July, we will assess what policies, if any, will change after a new President. Chances are that Andres Manuel Obrador, the favorite and most controversial candidate, will shake things up.