U.S. Dollar Finds Strength, Recovers Slightly

The U.S. Dollar is starting the week on its right foot, improving across the board after a rough beginning to 2018.

USD

Last week’s slew of data seemed to paint a familiar picture for the U.S. economy going into Q1, one in which labor is consistent, wages are increasing at the minimum, and manufacturing is on the rise. The consistency in the performance of other regions has kept the dollar in check, but now the greenback is not bleeding against its counterparts unlike the last three weeks, recouping some losses.

We will have a quiet week for statistics in comparison to last week, so we will keep an eye on headlines pointing at political disruptions, especially the ongoing debate on a budget. The deadline is January 19th to decide on a bipartisan bill that will keep the government functioning and establish perhaps new immigration rules along with it.

 

EUR

The Euro rose last week to its best level in three years, but the excitement subsided after the release of inflationary figures signaling a slowdown in the pace of price growth. Additionally, markets reaching new record highs kept the Euro from gaining further as an attractive safe asset.

More importantly, we will monitor the developments in Germany where Chancellor Angela Merkel is working on putting together a government coalition, a task with immense difficulty that could put to risk her ability to pass legislation. Furthermore, if talks fail, there could be a call for another election, indeed a political downside risk as it is clear anti-establishment sentiment is strong among voters.

 

JPY

The Japanese Yen lost about half a percent in value since last week following statements from the Bank of Japan pointing at keeping easing measures. Although Governor Haruhiko Kuroda did not sound pessimistic about the economy, it is understood by officials that the BOJ wants to keep an accommodative environment. Economic growth last year showed that Abenomics and the determination to steady credit has worked, thus why the Yen’s prospects for appreciation are low. Global tightening overall is now in doubt as inflationary growth may not be ideal for increasing borrowing costs, a feeling that works as a dollar-driver as long as it continues.