U.S. Dollar up as virus forces tough decisions
FEBRUARY 07, 2020
The U.S. Dollar is ending the week strengthening against all peers across the board as economic data is providing evidence of much better performance in this region than elsewhere.
Indeed, the greenback is up based on releases showing non-Farm Payrolls growing by 225K over the expected 165K, while the Labor Participation Rate and Unemployment Rate both exceeded expectations. The overall health in the labor sector is certainly impressive, yet wages seem to be stuck with Average Hourly Earnings coming in at 0.2% instead of 0.3%. Solid numbers here and dwindling markets around the globe are a good combo for dollar appreciation, which seems inevitable at the moment.
January was healthier for the American economy than Asian or European ones, which have seen a more direct negative impact from the coronavirus situation. The spread and deaths continue, and it is forcing companies to make arrangements to isolate China on their own, as we explained in the monthly outlook. Honda and Toyota Motors are now the latest to halt operations in the world’s second-largest economy, thus affecting all kinds of business for other countries such as the Oceanic nations. It must be noted that the Australian dollar is now at its weakest level since 2009 and other currencies are reaching multi-month as well as multi-year lows against the U.S. buck.
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The Euro has been plagued by bad economic statistics and doubts over the direction of both monetary and fiscal policy. Brexit negotiations seems to have all 27 member nations in agreement, but the EU Parliament still has not ironed out the details of spending as the big nations struggle with growing deficits and economic deficiencies. Germany is also going through a period of political change as Angela Merkel’s Christian Democrats are appalled at the growth of far-right support and alliances forming between other moderate parties and the Alternative For Germany.
We shall see if a Green Tech and infrastructure effort come forth, but it is clear the Euro-zone cannot compare to the pace at which the U.S. economy is steadily marching. A contraction in GDP for France in Q4, Industrial Production in Germany and France contracting by (-3.0%) on average in December, all point at a desperate need for recovery in the bloc.
The Mexican Peso dropped in value as inflationary data failed to impress. It has experienced swings within a 1.3% range since the start of 2020, primarily over the confusion of the direction of global markets in the midst of a virus. Commodity prices and the Emerging Markets have paid a toll for the uncertainty over China.
Most economists expect the central bank to cut interest rates at the Banxico February 13th meeting and see the economy may be growing by half the Finance Ministry’s expectation of 2.0% for the year. Peso had seen better fortunes since investors like the fact that the interest rates are high enough, providing yield in a world where it is scarce.