Dollar Losing For Now, Virus Effects Ever-Changing
The U.S. Dollar is weaker this morning keeping with the trend this week of dwindling faith on the buck as the globe looks to open most parts of the economy.
Most currency pairs are against the greenback as a rise in oil prices and stubborn sentiment of optimism is still pushing markets towards better fortunes. Oil prices are making some feel that the rally can start heading the other way as the inactivity still keeps the use of energy quite low, even with record-low gas prices at the pump. The other negative side today is in regard to the ongoing fight against COVID-19, with reports in China and other places that the virus may be changing and attacking in different ways. Overall, the world does not know whether to fully take guidance over the pros of re-opening economically or the trials that come with battling a condition still without a vaccine or full-proof treatment.
We will get details of the monetary policy committee’s thinking later today as we get FOMC Minutes from the April 19th meeting. On the emerging markets front, we need to take seriously Brazil’s situations as there has been a major flare-up in infections, little restrictions taking place, and it might be time to prevent travel back and forth. Stories from each individual nation are helping gauge how currencies behave, but as a basket EM might be dragged down by situations in the bigger developing nations. Colombia is set to prevent border crossings to avoid infection from Brazil. As a result, MXN could prove to play a role of Latin-American safe-haven as a flight of assets and risk takes place. It already improved by 1.0% today.
What to Watch Today…
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The Euro picked up some steam based on the belief in the Franco-German European Recovery Fund as well as the release of better-than-expected inflationary data. April’s Consumer Price Index for the bloc had an uptick of 0.3%, only slightly off from the 0.4% thought possible. Nevertheless, any move against deflation is perceived as less damaging and good for recovery. Additionally, the European Central Bank is making its funds available through PELTRO loans, the refinancing tools to add liquidity to the market with a lower interest rate than 0.0%. We shall see the effects, but the idea is to just avoid a credit crunch and get banks moving.
Sterling took a break today and rose, yet it has been standing on one leg all week after rumors that Brexit negotiations are growing sour and could lead to only further economic stress. Indeed, the U.K. is feeling it with inflationary data in the form of CPI halved to what it averages annually. The April reading of 0.8% is the lowest since August of 2016.
Communication between Brexit camps has been muddled by the crisis and other priorities, but in a letter from U.K. negotiator David Frost to EU’s chief trade negotiator Michel Barnier the British show concern that the EU is committed to offering a “low-quality” arrangement and asks that policymakers reconsider. Sterling could be in trouble rest of the year.