U.S. Dollar No Longer Sinking as Investors Re-Examine Possibilities

 

USD

The U.S. Dollar is trading in slightly improved ranges this morning following a crushing blow after Friday’s failure to repeal and replace former President Obama’s signature health legislation. The past two weeks witnessed the greenback depreciating by 2.5% against major peers according to the Bloomberg Dollar Spot Index. Today’s main event that could aid in turning the tide for the “buck” is Janet Yellen’s speech at 12:45PM regarding workforce developing.

Data-wise, earlier we saw the release of better than expected Wholesale Inventories, which grew 0.4%, but were revised downward for the month prior when they contracted. Some inconsistencies with indicators may be cause for delaying hikes as seen with Durable Goods Orders. We see the dollar’s chances for a surge later on as developments in Europe unravel and focus stays on a more economic-driven agenda that includes tax reform, a plus for Wall Street, and infrastructure, a plus for America.

Commodity-based currencies are still under pressure because of swings in the prices of oil and raw materials. Iron Ore prices dwindling have negatively impacted AUD and NZD. Additionally, South African Rand is steeply declining, mainly as a result of political turmoil. President Jacob Zuma is ready to fire Finance Minister Pravin Gordhan based on mismanagement of state funds and industries. However, the two have been known to clash based on ideology as the President has seek “radical economic transformation” while Gordhan kept spending in check. ZAR is 4.0% down for the week and it’s only Tuesday.

 

EUR 

The Euro remains around its highest point since November, staying strong after improved odds of a victory by Emmanuel Macron in the upcoming Presidential election. Currently, Macron has a 69.0% chance to win, a dramatic improvement from the start of the year when rightist Marine Le Pen dominated headlines. Polls and survey skeptics have reason to be concerned after the surprises of 2016, but the loss of excitement that pumped alternative candidates and parties across the continent seems to be fading.

The AfD, alternative for Germany, a radical anti-establishment party looking to defeat the democratic socialists and deviate from international agreements, has also lost popularity. A poll at the start of 2017 showed that 15.0% of the population agreed with AfD on matters of refugees and economic stagnation. Elections in the Saarland region showed their weakening appeal with just 6.0% of the votes.

 

GBP 

The Pound is trading near its best levels in a month and half as the world prepares for the official Brexit process to start tomorrow. Good news for Sterling came in the way of compromise yesterday as UK officials agreed to maintain some rules and laws in place even as they negotiate a separation from the European Union. The idea is to soften the effects of Brexit, both speculative and tangible, since many economists fear that the next two years could lead to hardship.

Clearly, British leadership will not back down from demanding sustainable trade terms and will minimize any financial costs. Some member countries are already demanding an amount of EUR 60-70 Billion in fees, a point of major disagreement. We will not know until it happens, but we believe there will be pushback from both sides from the beginning and there will be attempts to make an example out of the UK by the more hardline pro-Union leaders. The Brits also need more people involved in the talks as their numbers of individuals with expertise in EU matters are the low.