Weakness of U.S. Dollar Justified, Data Elsewhere Positive

 

USD

The U.S. Dollar is trading in weak ranges after ending last week with disappointing data that puts into the doubt the Fed’s ability to hike interest rates two more times. Retail Sales and other consumption figures highlighted the struggles of the economy in 2017 and the Bloomberg Dollar Spot Index is near its lowest point of the year. Chance of a Federal Funds increment at the June 14th meeting are above 93.0%, but we foresee difficulty in the FOMC taking action and likely waiting until the last quarter of the year.

Data continues to underwhelm with the Empire Manufacturing gauge showing contraction. This week we will monitor European developments as political uncertainty has faded to a certain extent, while Brexit hangs over the continent like a bag full of dirty water ready to burst at any point. Oil prices moving upward as a result of extended production cuts by OPEC and Russia is aiding our NAFTA currency pairs, so expect CAD & MXN to stay on recovery mode at least for today. Shale production in North America, which OPEC wishes would cease, could still be a drag on them later this week.

 

EUR 

The Euro is on the rise based on confidence built in the past few weeks with the French election easing concerns over the rise of anti-establishment forces and indicators proving that the European Central Bank’s measures have worked. Gross domestic Product numbers will be out for the Euro-zone tomorrow with an expectation of 0.5% quarterly growth.

Furthermore, Chancellor Angela Merkel is elated at her party’s recent victories in regions where they had not triumphed as much before, solidifying that her Christian Democratic Party will remain a priority as she gets ready to run for a fourth term in 2018.

 

GBP 

The Pound is currently in familiar ranges, refusing to fall in the midst of tense Brexit talks. The UK refused to accept European Union demands in regards to the timing of a trade deal after the exit terms are settled and the rights of EU citizens in Britain. The back-and-forth seems like an attempt to quiet critics of Prime Minister Theresa May’s approach and to rally conservatives behind the idea of running negotiations instead of being told what to accept.

The petulant stance may backfire as companies such as JP Morgan chase have announced plans to move jobs to Dublin and are already reaching agreements to do so soon. We strongly believe pressures from Brexit will sink Sterling especially if talks get more complicated and antagonistic.