June 1 2016

May 31, 2016 (Tempus, Inc.) – The U.S. Dollar is closing the month of May about 3.5% stronger, according to the Bloomberg Spot Dollar Index, which measures the “buck’s” strength against ten major currencies. Economic data that either met or exceeded expectations boosted the dollar against major currencies while having a positive correlation with better performance across global markets. Although the start of the year experienced turmoil and caused uncertainty, the Fed has been optimistic about the prospects of economic recovery and its rate outlook. The odds of a hike in July are up to 56.6%, especially after Chairwoman Janet Yellen expressed the sentiment of   many other officials that the timing may be appropriate.

Personal Income released this morning fell in line with expectations at 0.4%, while Personal spending rose a full percent exceeding the estimated 0.7% rate of growth. There is a slew of domestic as well as international data that will likely direct FX one way or the other throughout the week. Non-Farm Payrolls Friday will help define a timeline for gradual interest rate increases by the Fed.

EUR

The Euro fell about 3.5% against the greenback throughout the month, reaching its lowest level since mid-March. The woes for the Euro-zone continue with Consumer Price growth in May at a negative rate of (-0.1%), creating further concerns about deflationary pressures. More importantly, this weighs on the European Central Bank, which may have to strongly consider adding to its already generous stimulus package.
The ECB already stablished negative deposit rates and its benchmark rate is at 0.0%. Naturally, this adds to the circulation of the common currency and could depreciate the Euro further as we move into the summer months, when economic activity also tends to slow down.  
With the refugee crisis splitting countries politically and the ongoing debt negotiations with the struggling PIGS (Portugal, Ireland, Spain and Greece), expect the Euro to feel downward pressure ahead of the June 23rd “Brexit” vote.

GBP 

The Pound is ending May nearing its highest level against the dollar since the start of 2016. Sterling initially fell as much as 2.1% the first two weeks of the month as the heated debate over the potential U.K.’s departure from the European Union seemed to gain supporters for economic as well as xenophobic reasons. Nevertheless, mid-May saw a major turnaround for the “Bremain” side and GBP recovered all of its losses.

The reversal in the “quid’s” fate signified erasing yearly depreciation and no longer being classified as the worst performer amongst major currencies. As fears of a “Brexit” fade expect the focus to be on fundamentals (inflation, spending, employment, etc.), which could still bode poorly for the Pound for the remainder of the year as the BOE gauges the need to add easing measures in the face of anemic growth.


USA