August 2018

Aug. 31, 2018 (Western Union Business Solutions) – The U.S. dollar was mostly steady on the last day of the month as gains against the euro, sterling and Canadian dollar were offset by losses against the yen. An uptick in global trade anxiety has haven assets reigning. The latest signals from Washington hint at the U.S. upping tariffs on China as soon as next week. U.S.-Canada trade relations are also in focus ahead of a deadline today for the neighboring nations to make progress on a new Nafta pact. The euro softened after area inflation cooled and unemployment steadied above 8%, a still elevated level. August has proven a rollercoaster ride for the greenback which swung from one-year highs to one-month lows. The U.S. dollar index is on track for a narrow month-to-date gain.

 

MXN

 

Mexico’s peso, along with most emerging market currencies, surrendered more ground to the greenback on the month’s final day. The peso had rallied earlier this week on euphoria over the U.S. and Mexico agreeing in principle to a trade deal. The news hasn’t been enough to supplant worries about a U.S.-China-led global trade war, a scenario that’s spurring a flight to safety in the dollar and other havens.

 

CAD

 

Will the Canadian dollar finish the month with a gain against the greenback? The answer is shaping up to be a close call with the greenback enjoying a narrow MTD gain. Talks in Washington today between the U.S. and Canada hold the keys. Should officials reach a deal, it’s liable to spur a rally in the Canadian currency given that it sends three-quarters of its exports south of the border. No deal and the U.S. dollar is likely to finish August on top. Meanwhile, Canada’s economy this week stopped short of cementing a Bank of Canada rate hike from 1.50% on Sept. 5, as growth fell short of expectations and a gauge of wholesale inflation contracted in July. Key for the loonie from the BOC’s perspective will be whether Canada indeed holds fire on a rate hike next week and whether it tees one up for October.

 

USD

 

A rollercoaster August is on track for the greenback to cling to a gain. The buck raced to 14-month highs in mid-August only to see its upswing undercut after President Trump took a swipe at the Fed for raising rates. The buck hit one-month lows this week as fears of a global trade war diminished in the wake of the U.S. and Mexico brokering a deal in principle. Once back from the holiday weekend, attention will turn to the U.S. economy with the monthly jobs report on Sept. 7. Another month of strong job growth, low unemployment and higher wages would offer a recipe for a stronger dollar as it would keep the Fed on track for a late September rate hike.

 

EUR

 

A weaker euro Friday moved below one-month highs and was pacing a narrow month-to-date loss against the greenback. A still unsettled trade outlook between the U.S. and Europe, coupled with reminders of the still fragile shape of the bloc’s economy, put a headwind on the single currency. While the euro zone’s main gauge of inflation slowed a tick to 2% in August, a reading a bit above the ECB’s preference, less volatile core inflation remained anchored at a chronically low 1% which was consistent with the economy stuck in a low gear.

 

GBP

 

Sterling was poised for a bullish week but a bearish month in which it shed more than a penny against its U.S. rival. Sterling climbed out of a bearish range against the dollar this week after the EU’s lead Brexit negotiator sounded ready to offer Britain and unprecedented trade deal. The news, though, only provided a momentary boost to the pound as it didn’t erase the risk of Britain crashing out of the bloc without a trade agreement, a scenario that could subject the U.K. economy to significant downside risk.

 


USA 

Aug. 27, 2018 (Western Union Business Solutions) – The U.S. dollar started the week under pressure against the EUR with action subdued by a U.K. holiday. The dollar did not attract bids against big peers from Europe, Asia and Canada though it registered gains versus most emerging markets, led by a 3% jump versus the Turkish lira. Mexico’s peso was the exception is it rallied on signs that U.S. and Mexican authorities were making progress on updating Nafta. The buck is coming off a week of underperformance triggered in part by President Trump’s disagreement with the Fed raising interest rates. A signal last week by Fed Chairman Jerome Powell to gradually raise interest rates also undercut the buck by helping to stoke a stock rally that dampened demand for safer plays like the U.S. currency. The week ahead includes U.S. numbers on consumer confidence, revised second quarter growth and consumer spending.

 

GBP

 

Sterling got in the holiday spirit with a firm start to the week which allowed the U.K. unit to hold above recent 14-month lows. British markets are closed today for a bank holiday. A partial reversal in the dollar’s upswing has helped to alleviate downward pressure on the pound. Meanwhile, reports of tentative progress with Brexit negotiations between Britain and Brussels also translated into a firmer pound. A lack of U.K. data this week could see sterling look to Brexit developments and dollar movements for direction.

 

CAD

 

Canada’s dollar kept to a well-worn range against the greenback with holiday-subdued trading resulting in lackluster action. The market will use the coming week to fine tune expectations for the next increase in area borrowing rates. Thursday’s print of second quarter growth should help shed light on whether a rate hike from 1.50% comes as soon as September. Forecasts call a 3% annual rise in Q2 growth which would be the fastest pace in a year. The BOC next meets in 9 days on Sept. 5 with forecasts suggesting a less than 50% of a rate hike.

 

MXN

 

The peso powered to its strongest in two weeks on reports of the U.S. and Mexico making progress in updating Nafta. Recent uncertainty over the fate of Nafta has been a source of negativity toward the peso given that Mexico sends most of its exports north of the border. Upside for the peso was checked somewhat by emerging market weakness led by the Turkish currency’s renewed slide after markets there returned from an extended holiday.

 

USD

 

The dollar was mostly steady after a week of underperformance stemming from President Trump lambasting the Fed for raising rates while the central bank indicated that future rate increases would likely be gradual. Mr. Powell’s keynote speech in Jackson Hole, Wyo. last week was interpreted a dovish, noting a lid on inflation which effectively put one on the dollar. Thursday could prove the deceive day of the week for the dollar with data on personal income and spending and the Fed’s main gauge of inflation. Core inflation is forecast to tick up to 2% in July. Barring an upside surprise, the data may not be enough to excite dollar bulls given that the Fed has signaled a tolerance of allowing inflation to exceed its goal after missing it for many years.

 

EUR

 

The euro rose to its highest in 3 weeks against the greenback, buoyed by better than expected data on German business optimism. The Ifo survey topped forecasts with a 103.8 reading in August which offered evidence of modestly improved U.S.-German trade relations easing a headwind on the bloc’s biggest economy. Friday looms as the week’s most important day for the euro zone when it publishes central bank-impacting numbers on inflation and unemployment.

 

Aug. 21, 2018 (Western Union Business Solutions) – Reports that President Trump is not happy about the Federal Reserve raising interest rates hit the U.S. dollar which sank to eight-week lows. The dollar was broadly weaker Tuesday, having hit 6- and 8-week lows against the Swiss franc and yen and its lowest in nearly two weeks against the euro, sterling and Canadian dollar. The growth-bent U.S. president has reportedly taken exception with the Fed raising borrowing rates, something it’s expected to do for a sixth time under Mr. Trump’s watch in September. The dollar slipped on the president’s remarks as it called into question the Fed’s independence from political influence and gained added traction from dollar positioning having reached elevated levels of late. Yet pushing the dollar down for long could be a tough task with safer bets in vogue on worries about trade wars and Turkey’s economic crisis. Mr. Trump’s jab at the Fed puts heightened focus on a speech Friday by Fed chairman Jerome Powell.

GBP

Sterling shot nearly two cents above 14-month lows after the dollar fell prey to remarks from President Trump reportedly being displeased with the nation’s central bank raising interest rates, a move that he sees as an impediment to the U.S. economy achieving a faster cruising speed. Gains for the pound could be the short-lived variety given the headwind on the currency from how Britain is yet to strike a trade deal with the EU to keep from crashing out of the bloc come March.

USD

The U.S. dollar index flirted with two-week lows, as it fell victim to presidential criticism about the Fed raising interest rates. The remarks from President Trump came amid a lull in the economic calendar and at a time when market positioning was a bit stretched on the dollar, exacerbating its decline. Mr. Trump’s remarks put heightened focus on Fed Chairman Jerome Powell’s speech Friday at 10 a.m. ET at the central bank’s summer symposium in Jackson hole, Wyo. Should the Fed chairman signal full steam ahead for a rate hike in September it could help keep the dollar biased higher.

EUR

The euro got squeezed to its highest in nearly two weeks against the dollar which took on the chin remarks from President Trump that he reportedly isn’t happy about the Fed raising interest rates, moves that he sees as impeding his bid to shift the world’s biggest economy into a high gear. While the euro capitalized on the dollar’s retreat, gains could prove tough to sustain for long amid worries about Turkey’s economic crisis spreading to European banks.

YEN

The yen surrendered gains against the dollar that overnight had lifted it to 8-week peaks. The dust has started to settle after President Trump seemingly took a swipe at the Fed for raising rates, a blow that hit the dollar squarely on the chin. Still, the yen remains camped toward the upper end of its range as Mr. Trump’s call for lower rates exerted downward pressure on U.S. Treasury yields, capping upside in USDJPY.

CAD

Canada’s dollar romped to its highest in almost two weeks, boosted by rallying oil markets, up 1% to above $67, and President Trump’s displeasure about the Fed raising rates which he sees as standing in the way of meaningfully faster U.S. growth. Meanwhile, the prospect of higher lending rates north of the border has been a source of strength for the Canadian dollar. A parade of bullish Canadian data of late has lowered the bar for a rate hike from 1.50% as soon as September.

 

 

August 20, 2018 (Western Union Business Solutions) – An events-laden week started on a weak note for the greenback which ticked lower, but still keeping within reach of last week’s mid-2017 highs. The dollar eked out declines versus most of its top peers like the euro, yen and Canadian dollar. The market for now is giving the benefit of the doubt to U.S.-China trade talks that are set to resume in Washington starting Wednesday. The market is hopeful that the U.S.-China talks might be a stepping stone to an eventual breakthrough in trade relations between the world’s biggest economies. Central banks will take center stage Thursday through the weekend when the Federal Reserve hosts its annual symposium in Jackson Hole, Wyo. The Fed’s late summer summit could hint at the outlook for U.S. monetary policy, a key driver of the dollar’s months-long uptrend. The precarious shape of finances in Turkey and Italy remain in the spotlight, keeping underlying sentiment shaky and the greenback mostly in vogue.

Euro struggles to hold a gain

 

The euro followed the path of least resistance lower as Turkey continued to dominate the spotlight. The big source of downside risk for the euro is the degree to which European banks are exposed to Turkish assets. Meanwhile, elevated debt levels in Italy are another source of negativity for the euro with the coalition government in Rome expected to unveil a new budget and spending plans in the months ahead. Europe’s economic calendar features preliminary PMI surveys from top economy Germany on Thursday followed by revised German Q2 growth on Friday.

 

Sterling keeps above 14-month trough

 

Sterling was mostly flat at the outset of a new week with upside still restrained by uncertainty over whether Britain will reach a deal on trade with the EU before its departure from the bloc in March. Sterling currently finds itself perched a bit above 14-month lows hit last week, helped at the margin by an encouraging set of U.K. numbers last week on unemployment, inflation and retail spending that supported the narrative of gradual rate hikes across the pond.

 

Loonie pares Friday rally

 

Canada’s dollar favored its back foot after a data-inspired rally Friday. Oil prices wavered to begin the week, last down 0.3% to below $66. The loonie enjoyed a bit of a knee-jerk bounce Friday after headline inflation proved the strongest in 7 years, up 3% in July. It’s not surprising to see the loonie surrender some of its gains given the fact that core inflation remains largely contained around the Bank of Canada’s 2% goal. Still, moves to the downside in the loonie could prove limited on the view that the BOC could raise rates for a third time this year by October.

 

Fed to make headlines, potential waves, this week

 

America’s dollar index started the week with a gain, which kept it in close range of 14-month highs hit last week. The buck should have no shortage of drivers this week with U.S.-China trade talks set to resume Wednesday after a months-long recess. The big item on the dollar’s calendar is the Fed’s late summer symposium of global central bankers that begins Thursday and runs through the weekend. Markets will be all ears for fresh policy signals from Chairman Jay Powell. A tone that plays up the strong U.S. economy and plays down overseas uncertainties like Turkey would help to keep both U.S. interest rates and the greenback biased higher.

 

 

 

By Joe Manimbo, Senior Market Analyst