May 2019

May 31, 2019 (Western Union Business Solutions)  – Trade tensions kicked into a higher gear Friday to the benefit of the yen and the detriment of the Mexican peso. America’s dollar was mixed but mostly subdued as losses of nearly 1% against the yen overshadowed new highs versus rivals from the U.K., Canada and Mexico. The euro ticked higher though its rise lacked conviction. President Trump threw another log on the fire of global risk aversion after he announced new tariffs on Mexican imports in a bid to stop migrants from crossing the southern border. The news heightened fears of aggressive trade policy slowing growth in the U.S. and globally, sending stocks and oil markets swooning, and investors ducking for cover in safer currencies like the yen, Swiss franc and greenback. A slew of U.S. data to close out the month could add to the rise in market volatility.

Euro scores a technical victory 

The euro largely treaded water as gains against sterling translated into general support. The euro’s ability to keep above support allowed for a technical victory. Still, bouts of euro strength have lacked conviction on account of the bloc’s underperforming economy and concerns about Italy, the euro zone’s debt-choked No. 3 economy. Next week looms large for the euro with big-ticket euro zone data Tuesday on inflation and unemployment which could serve as a preview to Thursday when the ECB issues as policy update. Weaker inflation would increase the risk of the ECB at least laying the ground work for another round of euro-negative stimulus.

Goodbye May, hello new lows

Sterling capped off one of its worst months in a year with a slide to fresh January lows against the greenback. Key support for the pound gave way, a reflection of growing fears of Britain crashing out of the EU without a trade agreement. GBPUSD is down about 3.4% this month, putting it on course for its worst month in about a year.

Peso tumbles to 2019 lows

Mexico’s peso crashed to 2019 lows after the outlook for the nation’s economy darkened after President Trump announced a new 5% tariff on everything that Mexico sends above the border. The risk-averse backdrop compounded the peso’s plunge with the Mexican currency down nearly 3% plunge to December 2018 lows against the greenback.

Yen soars to 4-month peaks

A nearly 1% surge in the yen drove it to four-month peaks against the greenback. The yen is the initially winner of America’s decision to announce new tariffs, this time on its southern neighbor. Global risk aversion sent U.S. Treasury yields to new lows, making the greenback a less appealing bet.

Loonie pares losses after data  

Canada’s dollar pared losses after it notched new five-month lows. Canada’s economy ticked higher during the first quarter but the 0.4% pace of annual growth, which followed a 0.3% rate in Q4, fell short of forecasts. While disappointing, it helped that March growth (0.5% vs expectations of 0.3%) proved stronger than expected and suggested the economy entered the second quarter with more momentum. The data largely fit with the view of faster second quarter growth. Oil down more than 2% and around $55 doesn’t bode well for commodity currencies.

Cool runnings: U.S. inflation

The dollar favored its back foot after tame U.S. inflation depicted an opening door to a Fed rate cut. Consumer incomes rose and their spending increased but inflation remained scant with core prices up an annual rate of 1.6% in April, several notches below the Fed’s 2% goal. While the dollar has outperformed and raced to two-year highs, the latest trade frictions carry a negative element for the greenback. The potential hit to U.S. growth from trade conflicts has the market increasingly convinced that the Fed may need to slash borrowing rates at least once this year to ward off recession risk.

 

 

 


USA 

May 22, 2019 (Western Union Business Solutions)  – The euro was broadly steady with many players keeping to the sidelines on the eve of European elections. All eyes will be on how far right candidates fare in the Thursday to Sunday voting. Meanwhile, the euro’s winning streak against the embattled U.K. pound was on the cusp of a record. Another win today for EURGBP would mark the 13th consecutive day, the longest since the single currency’s inception in 1999. A wild card for the euro: Thursday data on German factory growth, seen contracting for a fifth straight month.

GBP

Sterling deepened a slide as it fell to new lows, hitting its weakest in more than four months against the greenback. Against the euro, sterling was on track for a record 13th straight day of losses. While down the pound may not be out, especially if Brexit should ultimately get called off. Still, heightened uncertainty over all things U.K. politics suggests that things could get worse before they get better for the pound. Meanwhile, underwhelming U.K. inflation today didn’t do the pound any favors as it argued against Britain raising interest rates anytime soon.

CAD

Canada’s dollar surged to one-month highs after bullish consumer spending suggested the Bank of Canada would not entertain an interest rate cut from 1.75% when it meets on May 29. Retail sales jumped by 1.1% in March, exceeding expectations. Adding to the report’s rosy glow, spending in February got revised higher. The data offered evidence of how months of strong hiring and low unemployment have started to translate into meaningful consumer spending, a good sign for first quarter growth, due on May 31.

May 7, 2019 (Western Union Business Solutions)  – A critical week is brewing as the final round of Brexit negotiations between the government and Labour begins today. Hopes of a cross-party consensus being reached are beginning to cool as both the Conservative party and Labour party appear to be losing confidence and trust in one another.

In a data-dry week until Friday, Sterling will be driven by Brexit updates and sentiment trading. An influx of key economic data wraps things up on Friday with UK quarter one GDP data and industrial and manufacturing output headlining.

Despite a somewhat hawkish Bank of England (BOE) meeting last week, Sterling traders barely blinked, still unnerved by Brexit-related uncertainties. BOE Governor Mark Carney warned that interest rates could be raised more frequently in the future, but instead of rising, Sterling stumbled.

Clearly the fog of Brexit still hangs firmly over Sterling and any fresh news that emerges this week could spark some more life into the politically charged British Pound.

USD

The US Dollar took a tumble last Friday following the mixed US jobs report. Although the non-farm payrolls figure exceeded expectations, wage growth underwhelmed. Sluggish wage growth means inflation could remain lower for longer in the US, which may pressure the Federal Reserve to cut rates over the next twelve months.

US Consumer Price Index (CPI) comes out Friday and will be closely monitored by traders. Aside from inflation, the dollar is being driven by risk-sentiment trading associated with US-China trade talks.

Negotiations between the world’s two largest economies resumes this week, but after US President Donald Trump threatened to raise tariffs on imports from China, investors have been left unsettled. Trade tensions echoed around markets and safe-haven currencies like the Japanese Yen and US Dollar appreciated yesterday, while riskier emerging market currencies depreciated.

 

AUD & NZD

 

After another difficult week for both the Australian and New Zealand dollars, this week comprises of key monetary policy meetings from the central banks of both countries. The Reserve Bank of Australia (RBA) held its meeting earlier this morning and the Reserve Bank of New Zealand (RBNZ) holds its meeting Wednesday morning.

The RBA left interest rates unchanged at 1.50% and AUD is up across the board as a result. There was growing speculation that the RBA might cut interest rates following Australia’s lacklustre inflation readings of late. The central bank did keep rates steady, but the prospect of a rate cut in the future remains on the table.

Growing speculation that the RBNZ will cut rates tomorrow has weighed on the NZD or so-called “kiwi.” Interest rate futures are pricing a 44% chance of the RBNZ cutting rates tomorrow, which could send the kiwi tumbling even lower.

 

May 1, 2019 (Western Union Business Solutions)  – The U.S. dollar strengthened after the Fed left interest rates unchanged and issued mixed messages on the economy. America’s central bank sounded hawkish on growth which it described as “solid.” On inflation, however, the Fed noted how price pressures have fallen. On balance, the Fed seems content to maintain a more neutral policy stance that gives it maximum flexibility to move lending rates in either direction as data warrant.

While interest rates appear on hold over the foreseeable future, the perception that the next move could be lower may leave the greenback at risk of paring more of its gains.

The minutes of this week’s meeting are due on May 22, followed by the Fed’s next gathering on June 19.