Daily Market Update

U.S. Dollar flounders with renewed trade optimism

September 05, 2019

The U.S. Dollar continued its retreat as hopeful global markets rejoiced over news that the U.S. and China plan to have a tariff meeting in October, thus fading fears of further escalation of the trade war.

Overview

Perhaps a solution is in sight, but at least it is clear the greenback is losing ground based on a turn towards riskier assets. Additionally, major developments in the United Kingdom where Parliament pushed to have a Brexit delay and blocked a snap election are helping global markets flourish further, along with the respective currencies.

It is worth noting the strengthening of the Canadian Dollar and the Mexican Peso, particularly the former whose central bank decided not to cut interest rates. The hawkish Bank of Canada Governor Steve Poloz said his committee refused to join the worldwide movement in loosening and cutting rates. CAD is at its strongest against the buck since the start of August and MXN is at its best in three weeks.

We believe the greenback could be set for further losses, but the employment situation suggests the economy is well as ADP Employment Report exceeded expectations coming in at 195K added payrolls over the estimate of 148K. Durable Goods Orders Purchasing Managers Indices, as well as Factory Orders, will be out later at 9:45 AM.

 

What to Watch Today…

  • Purchasing Managers Indices 9:45 AM
  • Durable Goods Orders 10 AM

Complete Economic Calendar can be found here.

 

EUR

The Euro is gaining against the buck as investors are starting to doubt that a stimulus package from the European Central Bank is imminent. Recently, financial officials have placed doubt on the ECB’s willingness to cut further rates or to revamp its quantitative easing program. Evidence of some recovery in productivity, such as better than expected PMIs, are suggesting that the economy may not need intervention.

Furthermore, economists argue that the ability of the central bank to do much is quite limited since it already threw a lot of monetary easing as it recovered from a crisis in the last decade. More importantly, the effects of negative rates are being scrutinized just as much as they need for governments to end austerity and start spending.  Tomorrow we get Gross Domestic Product figures for the second quarter, which if above 0.2% could only aid Euro prospects further.

GBP

The Pound climbed dramatically in value based on the moves in Parliament that put away concerns over a no-deal Brexit scenario. Indeed, Prime Minister Boris Johnson’s strategy failed as Parliament, with the help of Tory rebels, voted down a snap election and took steps to block a no-Brexit deal. The House of Commons passed the measure and the House of Lords has until Friday to pass it as well. The chaos continues as the PM tries to attack the opposition as afraid of going against him in a general election.

To add to Johnson’s hard times, his brother quit his position this morning as a Tory Member of Parliament and Business Minister causing only further turmoil. We believe a call for a second referendum on the Brexit question is still possible as the government friction seems to need a vote to end the process or force acceptance of the EU deal to leave including all its controversies like the Irish border.

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