Concerns Over U.S. Growth and Politics Taking Out U.S. Dollar Gains

USD

The U.S. Dollar is weak and markets across the globe are following suit following a devastating week for the White House and the Republican-led Congress. Much of the excitement that brought along gains for stock indexes and appreciation for the greenback the past four months, was based on President Trump’s promise to use his mandate to fix healthcare, deregulate, reform taxes and spend massively on infrastructure. Faith in the administration’s approach to governing thus far is going down big league. Meanwhile, the political uncertainty that clouds the European continent is now a reality for the United States in terms of gridlock.

This week will be another busy one with events potentially affecting the “buck” further. Fourteen officials from the Fed, including Janet Yellen, will speak throughout the week and Purchasing Managers Index as well as Gross Domestic Product data are slated for release. The spotlight now more than ever will be on American economic sustainability as well as the government’s ability to coordinate its efforts efficiently. Friday’s vote cancellation casts doubt on the administration, Republican leadership, and the future of implementing the agenda set out during a wild campaign. USD is near its worst levels since October.

 

EUR 

The Euro is revived after good news for German Chancellor Angela Merkel’s political party during the weekend. The Social Democratic Party achieved an important victory in the Saarland region, a nice start to the election year for the party and their biggest win in that left-leaning region in the last thirteen years.

Martin Schulz, the former EU president and current main candidate to follow Merkel, has energized the centrists and reduced concerns that German elections would hand power to alternative newcomers or rightists with an anti-trade as well as anti-immigrant campaign agenda. EUR is at a four-month best.

 

GBP 

The Pound had a strong surge ahead of its pivotal date with destiny as the UK prepares to officially separate from the European Union by invoking Article 50 of the Lisbon Treaty on Wednesday, March 29th. This is no small thing, but investors and traders seem ready, having priced in the move and I assume looking forward to the separation. We strongly believe the Pound will be under pressure as negotiations with the European leadership begin.

Germans, as well as other lawmakers, are readying to bring their views to the table, which may not agree with UK exit plans or trade hopes. The UK could face tremendous fees to the EU as it also struggles to keep companies from fleeing its shores. Furthermore, the Bank of England believes the Brexit is a huge financial risk and wants to gauge lending banks’ abilities to withstand worst-case scenarios. They expect negotiations and change in dynamics will test contingency plans across the board.