U.S. Dollar Improves on PPI and Instability Elsewhere

 

USD

The U.S. Dollar is currently on the rise as strong Producers Price Index figures hit the wire this morning along with ongoing lowering of Initial Jobless Claims. PPI excluding Food & Energy grew by 0.4% in the month of April; double the expected 0.2% while Initial as well as Continuing Claims came in at lower figures. It is important for the “buck” to trend higher on the basis of good economic performance since markets are growing concerned over the FBI Russian probe and firing controversy that seems to serve as another obstacle for the Trump administration to make progress on its economic agenda.

In addition to improved indicators, Boston Fed President Eric Rosengren once again called for three more interest rate hikes this year explaining that inflation needs to be prevented from outpacing its desired target as the economy continues to grow. Markets remain relatively quiet as it looks like there is a mix of convincing data that global output is better, but also risks in the political arena subduing any gains in confidence. Lots more data tomorrow could push dollar higher if positivity remains.

 

EUR

The Euro is in the midst of depreciating despite upgrades to its growth forecast. The European Commission raised their estimates from 1.5% to 1.7%, but warned that Brexit comes with a lot of uncertainty that could potentially cause stagnation, already seen in poor household consumption as well as business investment.

European Central Bank President Mario Draghi spoke to Dutch lawmakers and maintained a tone of wait-and-see, but certainly mentioned that the recovery seen in the Euro-zone is less choppy than before and that political risks have faded after the French election. We think solid data in the U.S. and policy divergence will keep EUR from gaining significant ground as well as the prospects of trouble in Italy.

 

GBP 

The Pound fell this morning following the BOE policy meeting in which officials said that any increment in interest rates will depend on a “smoother” Brexit. Industrial Production numbers did not help the prospects of any rate hikes as they revealed that the economy lost momentum in the first quarter of 2017. Households, per Governor Mark Carney, are also feeling pressure from higher prices, translating into hesitation in large purchases as well as retail.

The reality is that Brexit is not a time when the economy should be expected to be stellar in any way and the bitter start to the talks has left lot to be desired. We feel Sterling is overpriced at the moment and shall suffer further from the consequences of abandoning its place in the European security, trade, and migratory coalition. Some economists expected the central bank to have more than one dissident pushing for hikes, but only one argued for it.