Strong Dollar back after a short hiatus
JULY 17, 2019
The U.S. Dollar strengthened as a result of commentary that shook equity markets globally. Market watchers received word that President Trump could impose more tariffs from yesterday’s U.S. cabinet meeting.
Indices from Australia, China, Korea, and Japan all fell since stock exchanges thought maybe even a trip from U.S. officials to China was possible because of progress in talks. The lack of clarity will remain a heavy burden on global markets and the greenback will remain the main beneficiary of doubts surrounding a solution to the ongoing tit-for-tat tariff conflict.
It is possible for the buck to stay in strong ranges and avoid weakening if the Federal Reserve finds it difficult to argue for a July 31st cut. Recent favorable data such as Retail Sales and Industrial Production could convince a majority of members that a cut to interest rates now would be premature. The swings will continue as we can foresee how other pressures build up against the dollar, such as suggestions that the Treasury Department intervene in FX, which the U.S. has not done since 2000.
What to Watch Today…
- No major events scheduled for today.
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The Euro is currently down after the release of mixed data for the bloc showing that inflationary growth is steady as Consumer Price Index met expectations, but German investment sentiment turned out more negative than forecast. ZEW Expectations Index fell in June, but doubts deepened in July.
This comes as a contrast to news from the smaller EU member nations who are successfully coming out of the hole from the financial crisis. Greece’s stocks and healthy bond market suggest the EU’s structure works, but with the larger economies flailing the Euro will remain under pressure for what is left of this month.
The Pound remains on its downward path as a report out of the U.K.’s Sky that Boris Johnson planned on suspending Parliament in October to prevent opposition to a “no-deal” Brexit. Although fundamental analysis could see an argument for better Sterling fortunes, improved wages and steady inflation cannot overshadow the uncertainties of leaving the EU and the political friction in the country.
We see further losses possible, even as we enter negative territory for Pound last seen in March of 2017. Some banks are already calling for Sterling to be close to parity to the buck by end of the year if a “no-deal” Brexit materializes.