Daily Market Update

U.S. Dollar is Back: European Economy and Brexit Problematic

March 22, 2019

The U.S. Dollar returned to gaining following awful data on the European side and a realization across markets that the Fed’s announcement could be good for the economy since loose monetary policy maintains an accommodating environment.


This is not necessarily playing poor for the greenback since it is clear other regions are struggling far more. Particularly in the Euro-zone, Purchasing Managers’ Indices all over France, Germany, and the rest of the member nations are showing contraction in manufacturing.

Overall, these swings in FX flows have erased and given back points to investors. As mentioned earlier this week, predicting a consistent narrative is becoming very difficult because many items remain unresolved and the evidence behind an anemic global economy is very clear.

Perhaps the slowdown is temporary; Q4 was rough and translated into underwhelming and surprisingly contractionary figures for Q1 in various sectors both here, on the other side of the Atlantic, as well as China. Nevertheless, the buck’s ability to quickly recover has a real reason: while things are slow here, recessionary pressures seem to be forming elsewhere, especially the whole European continent. At the time of writing, American PMIs revealed expansion, but not close to expectations. 


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The Euro is down once more based on the awful economic reality of the larger member nations and the slow nature of activity in the region as a whole. Markit France’s Composite PMI did not expand as expected in March with a reading below 50.0 thus indicating negativity, so at precisely 48.7 instead of 50.7 estimated.

For the Euro-bloc, Manufacturing PMI contracted and the overall composite expanded with a reading of 51.3 instead of the forecast 52.0.  Germany’s Services showed unexpectedly good expansion, but their manufacturing definitely below 45.0 shows that that sector is fading. Euro will be subject to scrutiny from now on and Q2 will have to be a moment of recovery if the shared currency is ever to sustain gains for more than a week against the buck.


The British Pound fell by 1.0% this week, but may start seeing better fortunes now that Prime Minister Theresa May was able to delay the March 29th deadline for leaving the European Union, although not by much. Basically they have to agree to what the EU already put in place or they could face leaving without a deal on April 12th.  If May passes her deal, the new Brexit date would be May 22nd.

The meeting between the EU leaders and May is reported as mostly catastrophic though May was given this lifeline. Sterling and the U.K. economy may be in trouble if Britain’s government cannot achieve something quickly.

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