Daily Market Update

Dwindling buck as other regions turn optimistic

September 04, 2019

The U.S. Dollar is losing ground this morning based on renewed optimism as a few developments have calmed fears amongst investors.

Overview

The Pound is on a major surge following news yesterday of Parliament making headway in blocking a no-Brexit deal scenario that would see the U.K. crash out of the European Union with a lot at stake both economically and politically. In Hong Kong, where protests have been going on for months, Premier Carrie Lam elected to formally take off the table the proposal to allow extraditions from Hong Kong to mainland China.

Furthermore, European data this morning showed much-needed expansion in its Purchasing Managers Index while Retail Sales did indeed show an expected contraction. The mood in markets is one of caution still, but it seems like stock indexes around the globe are trying to mount a comeback. Perhaps the greenback could see weaker times if good things keep happening elsewhere that merit the buck’s depreciation to other assets.

 

What to Watch Today…

  • Bank of Canada Decision 10AM
  • Fed Charles Evans Speech (Dove) 3:15PM

Complete Economic Calendar can be found here.

 

EUR

The Euro is recuperating its value as; finally, some indicators are showing signs of positive momentum. Purchasing Managers Indices for both services and manufacturing showed expansion and higher than expected for the first time in months. While Retail Sales contracted by (-0.6%) in July, but the prior figures were revised and showed a higher significant expansion than estimated at 1.2%. We believe strongly that this truly is the only way the buck will lose ground to Euro as the EU’s bigger nations try to climb back in consumption and business activity.

Additionally, the markets are taking a breather over Italy.  The Northern League and its embattled leader Matteo Salvini is making preparations to act as a minority party within parliament since a new coalition is being formed that encompasses some leftist parties and the Five Star Movement. While Salvini came into government seeking anti-establishment reforms, a sense of need to be more pro-EU has developed during his tenure as deputy Prime Minister based on monetary concerns. The clash caused a break between Salvini and Five-Star, thus creating enough friction to start with a new government.

GBP

The Pound is up after Parliament decided to stand up to Prime Minister Boris Johnson and took the first step towards legislation that will prevent a no-deal scenario. Conservative Tories have recently had plenty of infighting and yesterday a party member left to join the other side in hopes to go against the Prime Minister’s wishes. Nevertheless, this means Johnson can shoot for a snap election to try to rebuild a majority in government.

He has been sort of campaigning already and this could add further uncertainty over how Brexit will be handled: will there be another delay? Will there be calls for a second referendum on the Brexit question? What is at least clear for now is that the PM’s plans are meeting serious opposition and the markets welcome anything that delays Britain’s separation from the EU.

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