July 22 2017

July 21, 2017 (Tempus, Inc.) – The beleaguered U.S. dollar was unable to stage a meaningful comeback overnight after taking heavy losses during yesterday’s sessions.  The dollar has been hampered recently by slowing economic indicators and the failure of the U.S. government to pass any meaningful legislation which casts doubt on the ability to eventually pass pro-dollar initiatives like infrastructure spending or tax reform.

The straw that broke the dollar’s back came yesterday as Bloomberg News broke a story that claimed special prosecutor Robert Mueller has expanded his Russia investigation to include President Trump and his business associate’s business dealings from even before the President had serious political aspirations.   As the story broke, the U.S. Spot Dollar Index fell off a cliff and the greenback sunk to a 2.5 year low against the Euro.

Yesterday’s data was also disappointing with the Philly Fed manufacturing index falling.  There is no major economic data or Fed speakers scheduled for today.  Therefore, the dollar will hope to avoid new Russia headlines and head to the weekend licking its wounds.

EUR

The Euro was a train barreling down the tracks during yesterday’s session despite mostly dovish commentary from ECB President Mario Draghi.  The European Central Bank left interest rates unchanged, which was widely expected.  In a press conference following the decision, the central bank head reiterated that the bank’s easy monetary policy is still appropriate, throwing cold water on speculation that the ECB is close to tightening policy.

Nonetheless, the common currency benefited from breaking Trump/Russia news on the other side of the pond.  The Euro rallied and broke technical levels of the May 2016 high.  The Euro’s run ended with the currency at its strongest level since January 2015 against the U.S. dollar.

AUD

The Australian dollar was one of the only major currencies that failed to rise against the besieged greenback.  Reserve bank of Australia Deputy Guy Debelle said in a speech today that just because an increase in other central bank’s policy rates doesn’t “automatically mean” that rates in Australia need to rise. Aussie OIS show traders are now only pricing in a 20% chance of a rate hike by December of this year, down from 33% yesterday.

The Aussie rallied early in the week after minutes from the RBA’s July meeting suggested growth is picking up.  The currency has since given up some of those gains.


USA 

July 20, 2017 (Tempus, Inc.) – The U.S. Dollar is trading in wild ranges this morning as markets react to the European Central Bank’s decision to delay any monetary policy tightening. Shockingly, the Euro is up as ECB President Mario Draghi is explaining that QE will not be changed and that officials are still committed to expanding and extending the program as needed, yet none of this is having a negative effect.

In fact, he admits that inflation is dragging, but feels very confident on the strength of the economic recovery. Basically, it looks like Draghi and other members felt the fall will provide all the necessary data and analysis that provide enough confidence to act on increasing interest rates without jeopardizing the progress being made.

Overall though, the U.S. Dollar is faring better across the board with positivity built from good housing numbers. The greenback also was not affected tremendously by the Bank of Japan’s announcement in which they upgraded their GDP forecasts, but lowered their inflation expectations, again. It seems like tapering of easing measures will happen everywhere, but in Japan.

EUR

The Euro is trading in wild ranges, swinging within a 75-point range as markets gauge the ECB’s thinking. As expected, rates were not changed, but there seems to be a counterintuitive correlation between the dovish tone of delaying action and the Euro appreciation we are seeing. ECB’s Draghi sounds very cautious yet optimistic.

Furthermore, he said that tighter financing conditions are “the last thing” the ECB wants. As we interpret it, the Euro deserves credit and its value reflects the lack of political calamity that once seemed possible for the continent as well as the economic strengthening that has spread beyond Germany. The ECB just wants to keep enjoying the show and go on vacation.

GBP

The Pound weakened by over half a percent following a lack of agreement on the amount the UK must pay the EU with a now very intense French delegate’s demand that they pay big time. Prime Minister Theresa May is already under a lot of pressure, but now she must explain to Parliament that the EU is serious about payment of obligations before any trade deals is possible.

Bruno Le Maire, France’s Finance Minister, even went as far as quoting former British Prime Minister Margaret Thatcher in saying, “We want our money back.” The tensions play poorly for a Brexit team struggling to have a cohesive message in the face of EU lawmakers ready to make the divorce proceedings punitive.