The U.S. Dollar is weak to close the week following a rally by the Euro sparked by the decision from the central bank to help the economy but refrain from cutting their benchmark interest rate currently at 0.0%.
Indeed, not going negative helped propel risk-appetite for European assets as investors perceive the intervention as a positive development for the region’s economic growth. The shared currency is now at a three-week best against the buck.
On our side of economic indicators, Retail Sales revealed double the expectation coming in at a pace of 0.4% in August over the 0.2% estimate. We will watch out for the University of Michigan Consumer Sentiment survey to see if optimism has picked up since it has been dipping since May when the trade war began escalating quickly. Clearly, data is not so bad, and it may foment dissidence from Fed officials ahead of their meeting on Wednesday. As of now, odds of a cut to the interest rate from 2.25% to 2.0% at 98.0%. There is barely a 2.0% chance that 50 basis points would be considered.
What to Watch Today…
- University of Michigan Wolverines Consumer Sentiment 10 AM
The Pound is now trading at its best level since July 25th, surging by 3.5% in that period as a result of market faith that Brexit may come, but with an actual deal as mandated by parliament’s new law. Prime Minister Boris Johnson has promised to work on a deal and has been demanded to ask for a delay on the deadline.
Some worry that he could convince Hungary’s delegation to vote against giving Britain a postponement, thus giving Johnson an argument that he cannot delay Brexit past Halloween. Ideally, Parliament wants more time and further negotiations, thus opportunity to scrutinize and mold the deal to their liking. One positive development was the announcement by the Northern Ireland Democratic Union Party to support EU legislation in Northern Ireland post-Brexit to facilitate the border issue with Ireland.
It is worth noting that there has been a reversal in the fortunes of the Oceanic currencies, which have advanced by close to 1.0% since the start of September. Naturally, we believe the dynamics are simple: good news related to the easing of trade-war tensions will significantly play into the appreciation of currencies counter to the greenback that suffered big losses from the added tariffs.
At this point, the globe has made some adjustments and concessions such as the agricultural purchases from China are always welcome signs that the two largest economies might not want to keep duking it out forever. We shall see how much more progress can be made.