The U.S. Dollar is currently on a negative trend across the board as a sudden drop in fear over tapering is fueling equity markets.
Overview
Noting the lack of overwhelming evidence that the economy is getting too hot to handle, traders feel the Fed as well as other central banks will have no choice but to maintain a wait-and-see approach for the remainder of the year. While some of the loose monetary policy may be taken back, it will be done gradually and slowly.
On the diplomatic front, President Joe Biden made a call to China’s leader Xi Jinping to discuss ways to improve relations as almost no progress has been made since the new administration came in.
Data-wise, Producer Price Index figures for August this morning revealed a slower pace than expected as well as seen previously with PPI excluding food and energy costs only producing a 0.3% bump, half the estimate. It is clear that suppliers are not experiencing outrageous inflation that merits the Fed’s concern. As the thinking starts going that the Fed will likely leave things alone until next year, the dollar could lose further ground and rapidly like in the second half of August.
What to Watch Today…
- No major economic events scheduled for today
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EUR ⇑
The Euro rose and stuck to its gains from yesterday following the European Central Bank’s announcement and Christine Lagarde’s press conference. While Lagarde explained that she saw a strong economic rebound happening, officials agreed that it was time to slow down the emergency program established to add further QE purchases during the pandemic and counter the negative effects.
As of now, the Euro sits strong, and the decision could mean the Euro does not weaken to lower levels unless indicators start disappointing. Euro fortunes could be on the positive, but we wonder how limited as the third quarter requires recovery from the third one.
CAD ⇑
The Canadian Dollar is mounting after early week losses based on the belief that the central bank will remain hawkish and eventually act on it. Bank of Canada Governor Tim Macklem made statements saying that the focus for the bank will be on interest rates rather than quantitative easing going forward.
Traders are strongly speculating the first hike could come as soon as the end of the second semester of 2022 or the start of the second half of the year. “Loonie” of course will be weaker if the economy prevents this from happening and further delays BOC moves.
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