Risk-Appetite Hurts Safe-Havens, While PMI Hits 6-year Best in Europe

 

USD

The U.S. Dollar continued its negative trend overnight as markets flourished because of solid manufacturing data in Europe, including the United Kingdom. The safe-haven Yen continues to suffer from the winds of risk-appetite blowing heavy, although we expect investors to slow down ahead of the French election this weekend. The currency of the rising sun has fallen by 3.5% in value since April 18th from a combo of North Korean nuclear uncertainty and optimism in equities.

Otherwise, the “buck” is weak as today the FOMC begins its meeting. There’s a 14.4% chance that the Fed decides to increase rates tomorrow, so not very likely, but odds are still high for mid-June at 68.3%. We feel the Fed will just play it very cautious and stay on a wait-and-see mode for the summer. With o data today, we’ll follow the flow of markets to see just how much higher indexes can tick and if any political headlines affect fluctuation.

 

EUR

The Euro remains strong in the midst of chaos with the Purchasing Managers Index helping the currency stay around its highest levels of the year. Euro-zone manufacturing climbed to its best pace of growth since 2011, once again proving that disciplined austerity measures, where applied and followed, as well as European Central Bank intervention have worked. Nevertheless, the Euro is being held back by anxiety over the French presidential race and the ongoing instability in Italy.

Although next week we will know if France will be led out of the EU or not, things in Italy are a perpetual mess economically as well as politically that could hurt Euro long-term. Even as productivity is up in the major economies of the euro-bloc, Italy is stagnant and its public debt represents 133.0% of its gross domestic product. You read that correctly and it is indeed reason to worry, bigly.

 

GBP 

The Pound keeps pushing forward with manufacturing also improving for Britain. Their PMI figures revealed progress, surprising economists who did not foresee April being the best month for sector growth in three years. However, the “Quid” could be in trouble if a German newspaper report is telling the truth and not alternative facts.

Per Frankfurt’s publication Allgemeine Sonntagzeitung, a dinner between Prime Minister Theresa May and EU Commission President Jean-Claude Juncker resulted in less common ground than desired. The Prime Minister tried to downplay the whole thing as just “Brussels gossip.”

This report highlights the issues with Brexit talks, which are an unprecedented and highly unfortunate event. Remember that May was never fully pro-Leave, but has embraced the role of leading a more “independent” UK very seriously. Meanwhile, her EU counterparts want to set an example and especially ahead of the French election, statements have been made on how the Brits are dreaming if they believe they’ll be better off alone.