Forex News

Dec. 2, 2016 (Tempus Inc.) – A decent NFP report showing the U.S. economy adding 178k new jobs in November and the unemployment rate falling to a nine-year low of 4.6% failed to lend support to the USD, as markets focus on the outcome of the Italian referendum.

The Federal Reserve is widely expected to raise interest rates later this month, but attention will then shift into 2017. Questions about the economy’s overall strength and inflation pressures created by some of Donald Trump’s proposals are likely to dominate interest rate speculation going into the New Year.

This morning’s economic docket was unable to change the greenback’s fortune. Weekly jobless claims came in higher than expected and touched the highest level since June. Claims increased by 17K to 268K. However, the four week average was mostly unchanged. Jobless claims this year have averaged near the lowest levels in four decades.

EUR

The Euro recovered slightly overnight playing its role as safe-haven to tumbling equity markets across the ancient continent. Investors are concerned that Italy’s referendum will not pass; risking the loss of a key pro-EU leader in Italian PM Matteo Renzi whose political existence is dependent on the “Yes” succeeding.

As discussed in the last few days, Brexit rhetoric from both sides of the equation has been less than friendly as both sides continue to accuse the one another of lack of cooperation. Britain’s incessant interest to remain a player in the single free market while reducing people’s mobility has struck the wrong chord with many EU lawmakers. The shared currency is likely to remain fragile and volatile in the days ahead.

GBP

The British pound was the biggest winner overnight, gaining a full percent against the U.S. dollar. The sterling traded to its strongest level since November 11th after Brexit Secretary David Davis said the U.K. would consider making contributions to the EU in order to secure the best possible access to the single market. Most EU officials have taken a hard line regarding access to the single market but recent commentary may show a thawing. Dutch Finance Minister Jeroen Dijsselbloem was quoted as saying that Britain might be able to participate in the internal market, albeit at a cost.


USA 

Nov. 17, 2016 (Tempus, Inc.) – The U.S. Dollar is holding on to its recent advances and is trending positively at the moment of writing following the release of good inflation data. Consumer Price Index figures fell in line with expectations and showed improvement from last month. Year-on-year growth fell in line with the estimated 1.6% and month-over-month registered at the exact forecast 0.4%.

Initial as well as Continuing jobless claims fell below expectations, a sign of continuing labor health. Steady numbers are certainly boosting the dollar’s prospects as we get closer to a potential rate hike in December. The Fed’s Yellen’s foreseen hawkish comments from earlier this morning are also helping the ongoing appreciation.

Oil prices rose with the news of another possible agreement between OPEC members to curtail production. Mexican Peso and Canadian Dollar are not likely to recover much ground, but their depreciation has slowed down. MXN is 2.8% away from its worst level on record and CAD is trading at it weakest level since March 1st.

GBP

The Pound is holding its tight ranges despite detrimental statements surrounding the Brexit process. Reactions to the terms of the separation have been strong recently, casting further doubt on a successful and mutually beneficial accord once Article 50 is invoked. Nevertheless, the UK economy does not want to hear it.

Fundamentals such as Unemployment and Retail Sales have exceeded expectations with the UK jobless rate falling to 4.8% and sales up 1.9%. We believe GBP has room for losses, especially weighing in policy divergence, but thus far post-U.S. election its downside risks have diminished.

JPY

The currency of the rising sun is currently trading around its worst levels since the beginning of June. Although JPY gained mostly from havoc in markets this year, it is down by 8.0% since election results came out last week.

In addition to markets flourishing, the Yen is now falling as a result of the Bank of Japan’s brand new fixed-rate operations buying program in which they will start purchasing unlimited two and five-year bonds at (-0.09%) and (0.04%). The approach is more of a statement since it got no offers and its goal is to control the yield curve in the midst of a turbulent bonds market this year.

Oct. 28, 2016 (Tempus Inc.) – As expected, the U.S. dollar was mostly flat overnight as market participants looked ahead to today’s economic docket.  Yesterday’s data revealed positive signs for the U.S. economy with Durable goods orders coming in net positive and jobless claims remaining near the best average in over 40 years. However, those prints were not enough to change the outlook on interest rates.

Today’s data, however, should solidify bets that the Federal Reserve will raise interest rates by the end of the year.  The U.S. economy expanded 2.9% in the third quarter of the year, beating expectations of a 2.6% reading. The increase represents the largest expansion in two years. The stellar growth follows a disappointing 1.4% expansion in the second quarter.  The report was not all roses, however. Personal consumption rose only 2.1%, missing expectations of 2.6%.  Nevertheless, the data should strengthen the Fed’s view that the economy is making slow and steady progress. Indeed, in the minutes following the GDP release odds that the Fed will increase rates by the end of the year jumped to 76% from 72% yesterday.

The U.S. dollar has gained modestly after the positive print. The University of Michigan consumer sentiment report is due out at 10 a.m. but will take a backseat to the growth numbers.

GBP

The British pound continued its retreat yesterday and overnight. The beleaguered currency was unable to take advantage of a report released yesterday that showed the British economy expanded more than economists expected. The country’s gross domestic product expanded 0.5% in the third quarter, after the Brexit vote. The sterling’s negative reaction to positive data shows that the currency may not have yet carved out a bottom and more losses are possible.  The main worry remains political, with uncertainty surrounding how the U.K. will exit the European Union. From our view, it is very likely that British businesses will be faced with a less skilled workforce as the free movement of EU citizens into the British marketplace will be limited.

CAD

The Canadian dollar has pushed to fresh multi-month lows against the U.S. dollar this morning after strong U.S. GDP highlights monetary policy divergence. The “loonie” touched its weakest level since March yesterday and continued its decline overnight as oil prices continue their retreat. WTI is holding under $50 a barrel and its 1.0% lower from yesterday.

Oct. 14, 2016 (Tempus Inc.) – The U.S. dollar extended its strong week overnight, rallying against almost all of its major rivals. The exception would be the commodity-based currencies that found support following strong Chinese inflation data. The greenback has been buoyed by rising interest rate expectations. The minutes of the last Fed meeting showed that policy makers were warming up to the idea of higher rates “relatively soon.”

Today’s economic data should bolster that narrative. Advanced retails sales met expectations, rising 0.6% in the month of September. The core sales that excludes volatile auto and gas sales, also met expectations of a 0.3% rise. A separate report showed that producer prices are also on the rise in the U.S., which should give added support to the case for higher interest rates. Total PPI rose 0.3% on a month over month basis, higher than the 0.2% expected by economists. All of the core readings either matched or slightly outpaced expectations as well. Later, the University of Michigan consumer sentiment report is slated to cross the wires.

JPY

After rallying yesterday on poor Chinese trade data, the Japanese yen is on the defensive again this morning. China’s factory-gate prices rose for the first time since 2012 indicating the Chinese economy is stronger than initially thought.

Consumer price inflation also rose for the first time in five months. The data sparked a rally in global equities with Japanese Nikkei rising half a percent and the European Stoxx 500 rising nearly 2.0%. The risk rally dampened demand for the safe-haven yen.  However, strong Chinse data cause the Australian dollar to rally nearly 1.0% against the U.S. dollar. China is Australia’s largest trading partner.

GBP

Another day, another sell-off for the British pound. The sterling remains under pressure due to the economic and political uncertainty surrounding the pending Brexit. The President of the European Council, Donald Tusk, had harsh words for the U.K.’s prospects. He said the options on the table were either a “hard Brexit” or “no Brexit” and that the notion that the U.K. would be able to remain a part of the EU’s single market was “pure illusion.”

The sterling has lost nearly 2.0% against the U.S. dollar this week. Overall, the pound is 18% weaker from the Brexit vote in June.

Oct. 1, 2016 (Tempus Inc.) – The U.S. Dollar rallied overnight after economic figures fell in line with expectations. GDP figures out of the U.S. indicated a steady rate of growth. Personal Income also met its forecast of 0.2% expansion while Personal Spending stayed put at 0.0% for the month of August.

Overall, it is clear that data is painting a positive picture of ongoing improvement in America as the rest of the world struggles. The USD’s current appreciation is also due to its safe-haven status as global equities are feeling the burn of Deutsche Bank’s troubles.

Commercial banks’ shares were having their best quarter in 18 months prior to the scandal at Deutsche and issues at Commerzbank AG. Stock indexes are down all across the board as the happy ambience from the OPEC production-cut agreement faded resulting from growing concerns over instability in European banking. Bonds are gaining popularity as low-risk assets with German yields at their lowest level since July.

Also aiding the “buck’s” appreciation is the Fed’s beloved inflation measurement, the Personal Consumption Expenditures Deflator, which expanded by 1.0% over the estimated 0.9%.

GBP

Sterling fell following underwhelming data for the second quarter of the year, adding to the Pound’s woes. The UK current account deficit increased to GBP 28.7 billion showing that exports are down even as Pound has lost value significantly.
Brexit did not cause the immediate problems to the economy many feared, but political disagreements domestically and with the rest of the EU are fomenting doubt in the business as well as banking sectors. Long-term growth is at a high risk, especially if companies start departing with employment opportunities and physical capital elsewhere. GBP lost 3.6% of its value in September.

EUR

The common currency is dealing with quite a mess. Although countries on the periphery have been known to be trouble-bound for almost a decade, market participants are now worried about Germany. The largest economy in the EU is facing many challenges as some of its marquee companies in banking and auto-manufacturing are heading downward.

What is occurring is a bit of a trickle-down effect, where these large firms are negatively impacting the growth prospects of smaller businesses around the continent. EUR is 1.3% lower from its peak reached around the start of the month.

 

September 16, 2016 (Tempus Inc.) – The U.S. Dollar is mostly improved after a week of risk-aversion throughout global markets and downside risks that are finally manifesting themselves. The Bank of England’s meeting concluded in the major central bank admitting that more will need to be done to spark the economy and signaled to the rest of the world that accommodative measures will remain in place for a long time.

Indicators in the UK, the Euro-zone, and the U.S. revealed a picture of unbalance in the industrialized nations while commodity prices floundering downgraded prospects for everyone else. CPI today showed a better expansion than expected, yet Retail Sales had a very poor showing yesterday. In this environment of global uncertainty, the greenback is thriving as a safety asset to hold on to.

Japan’s lack of direction and speculation over its willingness, or lack thereof, to stimulate the economy further, has not negatively impacted the Yen. JPY, as much of this year, remains strong as a result of dysfunction in resource markets and lost faith in emerging stock indexes.

EUR

The Euro remained in familiar ranges throughout this week after slowly, but surely falling to the dollar in the midst of growing concerns over the overall political and economic health of the European Union. Policy divergence, as compared to the Fed, has played a small role as well since it seems very unlikely the ECB will be able to tighten its policy anytime soon. Since the middles of last week, EUR has dropped by over 1.0% in value.

Today in Bratislava, the European Union is holding its first summit without the presence of the United Kingdom. If the world has forgotten, this meeting serves as a reminder that indeed Britain voted itself out without a tentative plan of action and there are more questions than answers about how negotiations for the full exit will go.

Despite some inflationary growth as CPI was released yesterday, German Chancellor Angela Merkel offered some strong statements about the dire state of the EU and its fragile political environment. “It’s a matter of war and peace,” said the official while adding, “I, for one, will never relent in pushing for a common Europe.”

GBP

The Pound continues to dwindle as traders weigh the chances of the BOE lowering interest rates near 0.1% by the end of the year. Although post-Brexit economic figures have eased fears of an imminent recession, the fact that BOE is openly speaking about cutting borrowing costs is a major policy stance turnaround. Prior to Brexit, the BOE was the only major central bank seen with the ability to hike rates just like the Federal Reserve.

However, the surprising twist of Brexit has thrown policy up in the air and the BOE is on a reactionary approach, carefully determining what needs to be done to avoid a financial disaster. GBP is now 2.3% weaker since September 6th.

September 2, 2016 (Tempus, Inc.) – After falling much of yesterday, the U.S. dollar was unable to retrace its losses and opened this morning mostly flat from yesterday’s close. The greenback fell after two separate manufacturing reports failed to meet market expectations yesterday morning.

The U.S. dollar has recommenced its sell-off this morning after Non-Farm payrolls failed to meet expectations.  Payrolls rose by only 151K I in the month of August, failing to meet expectations of a 180K, according to the Labor Department.  The headline has disappointed market participants and traders will now push back expectations of a September rate hike, weighing on the greenback.

The report was not all negative, however.  Last month’s reading was upwardly revised to 275K jobs created from 255K.  And while the jobless rate (4.9%) and participation rate (62.8) were unchanged, wages gained modesty last month.
The result of today’s major data has solidified our view that the Federal Reserve will not find the scope to raise interest rates until at least December, after the U.S. elections in November.

GBP

A combination of disappointing U.S. data and a strong reading from the U.K.’s Manufacturing Purchasing Managers’ Index caused the British pound to gain 1.5% against the U.S. dollar during yesterday sessions.

The British pound was able to hold its gains overnight ahead of the much-anticipated Non-farm payrolls print in the U.S.  The sterling is set for its third straight weekly advance against the U.S. dollar after touching a multi-decade low on August 15th.

Indeed, the sterling is set to gain against all of its 31 major counterparts this week.

JPY

Despite general dollar weakness this morning, the Japanese yen has been unable to take advantage. The yen is more than 3.0% lower against the U.S. dollar over the past seven trading session as policy divergence remains center stage.

Fundamental data releases from the island nation have continued to disappoint, highlighting the potential need for the Bank of Japan to bolster its monetary stimulus. Meanwhile, the conversation in the U.S. has shifted to “when” not “if” the Federal Reserve will tighten policy in the coming months.

August 19, 2016 (Tempus, Inc.) – The U.S. dollar’s negative momentum from yesterday afternoon continued overnight with the Bloomberg Spot Dollar Index touching a three-month low. The greenback came under slight pressure yesterday as the minutes of the last Federal Reserve meeting showed that voting members were split as to whether rates should be hiked later this year. Policy makers seemed to agree that the labor market is improving but there was disagreement whether the U.S. is reaching full employment. It is widely expected that full employment would push wages higher and pull inflation up as well. However, some members stated that they believe they will have ample time to react if inflation pressures become apparent.

The perceived lack of urgency has lead traders to pare down bets the Fed will act later this year, dragging the greenback lower. Swaps showed a 51.0% change of a Fed rate hike before the minute’s release. They currently sit at 46.0%. Tempus holds our belief that the next rate hike will not take place until 2017.

Fed members William Dudley and John Williams will both speak today and could spark volatility.

GBP

The British pound was the biggest winner overnight, gaining nearly 1.0% against the U.S. dollar before giving up some of its gains. Indeed, the sterling touched a two month high after another report pointed to a rosier outlook in post-Brexit Britain. Retail sales jumped 1.4% in July, the best July reading since 2002, according to the Office for National Statistics. The print beat expectations for a 0.1% rise and follows a dismal 0.9% contraction in June.

The data print is the third this week that has beat expectations, which shows that the British economy may rebound from the Brexit vote better than some had expected. Inflation data impressed on Tuesday which was followed by good labor data yesterday.

JPY

The Japanese yen briefly traded past a large physiological level for the second time this week overnight. The yen remains near its strongest level of the year against the U.S. dollar and within striking distance of levels not seen since the summer of 2014.

Data released overnight shows the pressure a strong yen puts on the export-driven Japanese economy. Japanese exports fell 14.0% in July from the year earlier. This represents the biggest decline since 2009 and is the 10 consecutive month of declines. The Bank of Japan will re-evaluate its monetary policy next month and speculation is growing that the central bank will need to take additional measures to prop up the world’s third biggest economy.

Aug. 13, 2016 (Tempus Inc.) – The U.S. dollar has been able to recoup some of yesterday’s losses overnight, but retail sales and consumer sentiment data disappointed and the Bloomberg Dollar Spot Index remains near a seven-week low. The greenback is benefiting from developments abroad. Poor economic data released in France and in the United Kingdom have provided the catalyst for the dollar’s rebound against its European rivals.

Thursday’s economic docket showed that initial jobless claims were little changed, with 266K requesting new benefits, down from 267K in the week prior. Initial jobless claims continue to hold near a four-decade low for most of this year, highlighting strength for the labor market. Indeed, filings have been below 300K for 75 straight weeks, the longest stretch since 1970.

NZD

The New Zealand dollar has rallied to a one year high against the U.S. dollar after the Reserve Bank of New Zealand took less dovish action than some had expected. In a widely expected move, the RBNZ cut interest rates by 25 basis points to a record low of 2.0%. However, about a quarter of market participants expected the central bank to cut rates by 50 basis points in an effort to boost weak inflation leading to additional gains in the Kiwi. The NZD/USD is now at its strongest level since May of 2015.

While the RBNZ doesn’t target the exchange rate, the longer it stays elevated, the more it damps tradable inflation and makes it harder for the central bank to meet its mandate, Assistant Governor John McDermott said in an interview late yesterday.

GBP

The British pound is back below $1.30 and retraced its gains from yesterday after a report showed that home sales experienced their fastest decline since 2008, further proof that effects of the Brexit vote are making their way into the real economy.

The Royal Institution of Chartered Surveyors’ showed that sales fell the most since the financial crisis.

Prices of properties that did sell continued to rise, but at the slowest pace in three years. British stocks, particularly housing related equities, have fallen sharply after the release.

Aug. 4, 2016 (Tempus Inc.) – The U.S. Dollar was mostly quiet overnight as traders awaited the much anticipated monetary policy decision from the Bank of England. The greenback is gaining in early trading, including a nearly 1.5% boost versus the sterling, after the Bank of England used nearly every arrow in its proverbial quiver to battle the potential economic fallout from the “Brexit” vote.

Yesterday’s American economic docket was fairly strong, which allowed the U.S. dollar to push modestly higher against the majority of its rivals. ADP Private jobs data beat expectations and Markit and ISM reports showed growth in the service sector.

Weekly jobless claims registered slightly worse last week, but has not negatively affected the dollar.  Claims rose by 3K to 269K, according to the Labor Department. Later, factory orders are expected to register a disappointing -1.9% in June, after falling 1.0% in May. Durable goods, orders for items expected to last at least three years, are also expected to drop. Nevertheless, the major risk event for the U.S. dollar this week remains Friday’s Non-farm payrolls and unemployment data.

GBP

The British sterling is falling like a rain on the river Thames this morning after the Bank of England threw the kitchen sink, and then some, at the problems looming after the United Kingdom voted to leave the European Union. As largely expected, the Bank of England cut interest rates for the first time since 2009 to a record low of 0.25%. But the central bank announced it would utilize a number of other monetary tools to bolster the economy. Governor Mark Carney increased the central bank’s asset purchase target for the first time in four years. The increase was 60 billion to 435 billion pounds.

The Monetary Policy Committee said it will buy 60 billion pounds of gilds over the next six months and as much as 10 billion pounds of corporate bonds in the next 18 months. There did appear to be some disagreement among voting members as to whether quantitative easing was appropriate at this point. The central bank also announced a plan that would lend as much as 100 billion pounds to banks to ensure the measures reach the real economy. All told, the Bank of England expanded its balance sheet by 170 billion pounds.

The British pound fell more than 1.5% against the U.S. dollar in the hour after the decision.  At the time of writing, BOE Governor Carney is speaking at a press conference and the sterling as rebounded slightly.

EUR

The Euro remains in fairly unremarkable ranges against the U.S. dollar.  The common currency found support last week after a slew of disappointing American data. However, that modest rally came to an end yesterday as the Euro fell 0.50% against its American counterpart during yesterday’s session. Data out of the Euro-zone has proved decent, albeit soft.  Service data showed the sector is barely growing in the E.U. and retail sales failed to impress.

Tomorrow’s U.S. employment data may spark the EUR/USD out of its sluggish range. However, as many European’s are off of work on holiday, current ranges may prevail in the coming weeks.