The U.S. Dollar is swinging within a half percent range against most major counterparts as markets digest both political and economic developments.
The last revision of Gross Domestic Product growth in the second quarter came in as expected at 2.0%, which is a significant slowdown from the 3.1% experienced in the first quarter. This gives ground to the argument by the Fed that trade concerns and in general a slowdown in global demand have had an impact, thus the need to consider easing measures and lowering of interest rates. However, the effect on the buck has not been negative and in the midst of doubtful markets, the greenback maintains its strength as a matter of being considered a stable asset.
Core Personal Consumption Expenditures (PCE), a preferred measure of inflation by the Fed, improved to 1.9% over the 1.7% expected. Personal Consumption, however, did come in slightly less than its estimate 4.7% at 4.6% instead. Trade concerns have not necessarily subsided after a World Trade Organization ruling on illegal subsidies to AirBus that prompted the U.S. to discuss the potential levy of tariffs on $8.0 billion worth of goods. Countermeasures may also come in the form of tariffs on American products going into Europe. These new costs to trade could come as soon as October. At the moment of writing, the buck started showing some weakening.
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The Euro has failed to materialize any major gains from turmoil in other regions as its weakening economy is under the spotlight. Recent statements from European Central Bank officials do suggest concern over the lack of improvement to German manufacturing, the ongoing contraction in Industrial Production, and the potential for recession going into next year.
The WTO ruling only added to worries over barriers to trade that had been diminished for a while. Subsidizing companies to the point where it compromises fair competition is clearly a violation, but with AirBus it is an even bigger deal. The ruling will clearly state the committee’s findings on September 30th when it will be fully available.
The Pound did not find support after Parliament’s comeback since the discourse with the current government only got more heated. Indeed, the words thrown at each other got so harsh at times to a point where the Labour Leader Jeremy Corbyn asked Speaker of the House of Commons John Bercow to call for a gathering of party leaders to form a joint statement against abusive language.
Prime Minister Boris Johnson is adamant that his plan to follow through with Brexit at the October 31st deadline move forward and there is such toxicity in Parliament that they may not even agree on when or if to have elections. The unfortunate state of affairs only creates uncertainty without any deal yet accepted or clear political direction.