Ifo Index

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.

Apr. 24, 2019 (Western Union Business Solutions)  – The U.S. dollar stayed in the driver’s seat after fresh signs of weakness abroad. The euro and Canadian dollar favored multiweek lows while the U.K. pound hit its weakest in months. The Aussie dollar crashed to six-week lows, dragging the kiwi dollar along for the ride. While stronger, the greenback hasn’t reached a significantly higher orbit, given the limiting forces of the Fed’s steady rate outlook. Still, the dollar stands to gain from optimism about U.S. growth which contrasts signs of a worsening picture abroad. Germany’s influential Ifo survey on business conference unexpectedly worsened while inflation Down Under fell to multiyear lows. Canada’s dollar was on rocky ground ahead of a local interest rate decision today. The Bank of Canada is not expected to change rates but will issue new forecasts for growth. A dovish assessment of the Canadian economy would bode bearishly for the loonie.

EUR

A real bad real-time look at Europe’s biggest economy kept the euro pinned near three-week lows. Germany issued another sobering assessment of the bloc’s biggest economy as a gauge of April business confidence unexpectedly deteriorated, falling to 99.2 from 99.7 in March. The data was consistent with German growth remaining in a very low gear this year as it wrestles with weaker trade and factory growth.

GBP

A cocktail of a stronger dollar and nagging Brexit unease knocked sterling to fresh two-month lows. U.K. lawmakers returned this week from an extended Easter break with pressure growing on the prime minister to win backing of her EU exit deal or turn the reins over to someone else. The uncertainty for both Brexit and Mrs. May’s leadership has eroded pound sentiment.

CAD

The loonie fell to six-week lows as traders braced for a policy decision today at 10 a.m. ET from the Bank of Canada. No change to the bank’s 1.75% lending rate is expected this week or perhaps at all this year. Central bankers will also release new forecasts for growth that could be impactful for USDCAD. Continued caution about the outlook for growth or expectations for the economy to remain in a lower gear this year would tend to keep USDCAD biased toward the top of its range with the pair sitting 2 cents from 2019 peaks.

AUD

The Aussie dollar plunged to six-week lows after weaker than expected local inflation strengthened the case for the nation’s central bank to slash borrowing rates to new lows. The slowing in first quarter inflation to 1.3% from 1.8% in Q4 was the weakest rate since 2016. Tepid inflation lowered a bar that was seemingly already within reach for the Reserve Bank to cut rates from 1.75% in the months ahead. The RBA next meets on May 7.

Apr. 22, 2019 (Western Union Business Solutions)  – FX markets remained in holiday mode with parts of the world observing Easter Monday. With a good chunk of the market closed, the U.S. dollar and big peers from Europe and Japan barely budged. Oil currencies like the Canadian dollar outperformed as crude pushed to new highs above $65 on reports that Washington is trying to impede Iranian exports. The Aussie and kiwi dollars weakened along with emerging markets. With the greenback little changed, it kept around multiweek highs scaled last week in the wake of rosy news on the U.S. economy which contrast fresh signs of weakness across the Atlantic. Data is likely to hold the keys to FX action this week, with attention on German business confidence Wednesday and U.S. first quarter growth Friday. The Bank of Canada Wednesday is widely expected to keep interest rates unchanged.

EUR

The euro favored multiweek lows in quiet holiday trade. Much of Europe is on a long holiday weekend for Easter. Once back from the break, Germany’s beleaguered economy will remain under the microscope. While chronic German weakness has weighed on the euro, any good news this week on Europe’s biggest economy might allow the single currency to rebound. Germany’s Ifo index of business morale on Wednesday is forecast to rise for a second straight month.

GBP

Sterling has descended toward the bottom of its range amid a revival in the U.S. currency. Meanwhile, the specter of several more months of the Brexit impasse dragging on has done little to whet appetite for the U.K. currency. The pound’s decline has it within a fraction of a cent away from technically important levels like its 200-day moving average. That level could act as a solid floor but if it gives way it could set the stage for accelerated losses over the short run.

CAD

Canada’s dollar rose in otherwise light holiday trading, getting a lift from oil topping $65, a new 2019 high. Other than that, many traders kept to the sidelines with Europe on a long Easter holiday weekend while others held off on meaningful wagers until the Bank of Canada issues its policy decision Wednesday. Slower growth of late suggests that Canada’s central bank will leave its benchmark interest rate at 1.75%. A status quo, cautionary statement would fit with the narrative of steady borrowing rates this year, a scenario that would likely keep USDCAD confined to its current range.

 

 

 

 

 

Apr. 10, 2019 (Western Union Business Solutions)  – An action-packed Wednesday started with a subdued greenback. The euro held firm after the ECB left borrowing rates unchanged while sterling strengthened as EU officials meet to consider another Brexit delay. Oil near 2019 highs above $64 buoyed commodity currencies like the loonie and Aussie dollar. Norway’s currency rallied after hotter than expected inflation smoothed the path to higher interest rates. In addition to the European happenings, investors today will also scour U.S. inflation data and the minutes of the last Fed meeting. Today’s events could shed light on whether current central bank policies are appropriate or if officials may need to act to stave off a sharper slowdown. While positive for growth, lower interest rate tend to be negative for a currency by tarnishing its appeal to yield-chasers. Higher inflation and less dovish Fed minutes could boost the U.S. dollar.

The euro fell from multi-week highs after the ECB left interest rates unchanged and the post-meeting message from President Mario Draghi was a largely downbeat one. Mr. Draghi acknowledged that recent data had been weak and said that global weakness persisted. On the interest rate outlook, the ECB said that rates would remain anchored at crisis lows all this year with any increase coming no sooner than earlier 2020. Having strengthened in the run-up to the ECB meeting, the euro looks vulnerable to renewed declines given the still-weak backdrop for the bloc.

A potentially crucial day in the road to Brexit started with a gain for the U.K. pound. Theresa May is in Brussels asking the EU for another Brexit delay. Reports suggest another delay could come with strings attached such as a lengthy delay to late 2019 or early 2020. While a long delay would only prolong the uncertainty, it would also eliminate the risk of Britain crashing out of the EU without a deal as soon as Friday, the scenario supporting the pound at the moment.

The loonie was stable, though below multiweek highs reached a day ago. Oil was also steady near fresh 2019 peaks above $64 which bodes well for commodity-linked currencies. The loonie is consolidating ahead of crucial central bank events in the U.S. and Europe.

The dollar pared declines after headline consumer prices accelerated more than expected. The CPI rose at an annual rate of 1.9% in March, above forecasts of 1.8% and February’s 1.5% increase. Core inflation slowed a tick to 2%. The data’s message to the Fed: stay patient. Inflation running at or near the Fed’s 2% sweet spot should help to reduce the likelihood of a dollar-negative interest rate cut. For more clues on the policy outlook, look to today’s minutes of the last Fed meeting due at 2 p.m. ET. A status quo message that emphasizes steady rather than lower rates could translate into a dollar tailwind.

 

Apr. 8, 2019 (Western Union Business Solutions)  – A big week for Europe got off to a positive start for both the euro and sterling. America’s dollar softened which lent support to commodity rivals like Canada. The weaker U.S. currency allowed oil prices to push to five-month highs above $63. Last week’s U.S. jobs report did little to excite dollar bulls as slower wage inflation suggested the Federal Reserve was all but done raising interest rates. And while hiring bounced back smartly with a gain of nearly 200,000 in March, the pace of job growth slowed over the first quarter to a monthly average of 180,000, down from the 223,000 it averaged last year. Wednesday is a big day this week when the EU holds a Brexit summit, the ECB issues a policy decision and President Mario Draghi holds a news conference, and the Fed releases the minutes from its last meeting.

Nothing like caution ahead of an ECB meeting to ease pressure on the euro. Europe’s single currency rose above one-month lows as investors pared bearish bets ahead of Wednesday’s ECB decision. While no changes to policy are expected this week, the main focus will be on how dovish the ECB president sounds in the wake of area inflation falling to a danger zone below 1%. The euro could bounce higher if Mr. Draghi signals that its current policy prescriptions of rock bottom interest rates are enough to spur an economic rebound in the months ahead.

Sterling ticked higher ahead of a week that could see heightened volatility. Britain’s leader, Prime Minister Theresa May, is holding crunch Brexit talks with the opposition Labour Party to try to forge a compromise deal ahead of an EU summit on Wednesday. That’s when Mrs. May hopes the EU will accept her second request to push back the Brexit deadline, this time to June 30 from April 12. But if a compromise deal with Labour remains elusive, it would keep alive the risk of Britain crashing out of the EU without a deal as soon as Friday, the dire scenario that could potentially fuel a significant slide in the U.K. currency.

A weaker U.S. dollar extended a hand to the loonie which rose out of its biggest hole in a week. Fresh signs of a moderating Canadian economy could make gains tougher to sustain for the loonie, however. That’s because Canada’s employment report last week showed a surprise loss of jobs. Consequently, the Bank of Canada appears less likely to veer from its cautious rate path anytime soon. The BOC next meets on April 24, when it is all but certain to keep borrowing rates unchanged at 1.75% amid economic uncertainty at home and abroad.

The buck got off to a sluggish start to the week after mixed jobs data last week did little to quash chances of the Fed cutting interest rates by year-end. Stronger hiring is always welcome but dollar bulls took exception with weaker wage growth, an outcome more conducive of steady to lower interest rates than higher ones. The buck’s sights this week will be on European developments on Brexit and the ECB, and Wednesday events like the minutes of the last Fed meeting and consumer inflation which is forecast to accelerate.

Apr. 3, 2019 (Western Union Business Solutions)  – A mostly weaker U.S. dollar retreated from three-week highs. The buck pushed higher against the yen, reaching a two-week peak, but it slid versus counterparts from Europe, Canada and Australia. Emerging markets like the South African rand and Mexico’s peso also strengthened. A tentative uptick in optimism on the trade, global growth and Brexit fronts is conspiring to pressure the safer greenback. The buck’s bullish glow tends to fade when global risks abate. That’s what’s happening today as Europe released reassuring services data and Theresa May sought bipartisan Brexit talks with the Labour Party to find a compromise deal that avoids a messy break from the EU. Meanwhile, the U.S. and China today hold another round of trade talks in Washington. In a hole, the dollar will look for a direction from U.S. numbers today on private sector hiring and services growth.


Euro rescued by stronger services growth

 

The euro rebounded from three-week lows after a double shot of good news on the bloc’s economy. Euro zone services sector growth got revised higher while the 0.4% jump in February retail spending was two times stronger than forecasts of a 0.2% rise. While encouraging, today’s data may only offer a momentary boost to the single currency given the still fragile shape of the bloc’s fundamental health.

 

Brexit winds shift, boost sterling

 

Brexit news continues to hold significant sway over sterling as it bolted higher on hopes that Britain might avoid a nasty, economy-damaging split from the EU. Prime Minister Theresa May vowed to hold cross-party talks with her Labour rivals to try to find a compromise deal. May’s potential teaming with Jeremy Corbyn, the head of the Labour Party, suggests a greater likelihood of Britain pursuing a softer Brexit, the scenario that could be least disruptive to growth compared to no deal exit. Sterling remains vulnerable to two-way volatility until some form of Brexit clarity takes shape.

 

Loonie nears 2-week peak

 

Canada’s dollar flirted with two-week highs, boosted by oiling nearing $63, a new five-month high. Market optimism is in greater supply today on easing concerns over trade, global growth and Brexit. The loonie is also taking advantage of the weaker U.S. dollar whose otherwise rosy complexion tends to fade when global risks abate and investors wade into riskier waters. The loonie’s main sights are set on Friday data on Canada’s job market. Hiring is forecast to slow after big gains over recent months. Forecasts call for a net increase of 1K jobs in March, down from more than 50K in February. Unemployment is expected to remain at a low 5.8%.

 

Disappointing data keeps dollar on back foot

 

The greenback moved from three-week highs to its lowest in nearly a week amid mounting evidence of a moderating American economy. ADP’s report on March hiring underwhelmed with an increase of 129,000, the fewest in 1 ½ years. By coming in below forecasts of 170,000, it suggested a higher chance that the more important nonfarm payrolls on Friday might also print below expectations of a gain of 180,000.

 

 

Mar. 15, 2019 (Western Union Business Solutions)  – The EUR and other major currencies rallied and the USD came under pressure in the aftermath of the Federal Open Markets Committee’s decision to leave the Fed Funds Rate at 2.25% to 2.50% and to refrain from raising interest rates this year.

Below is the official Federal Open Markets Committee statement:

“Information received since the Federal Open Market Committee met in January indicates that the labor market remains strong but that growth of economic activity has slowed from its solid rate in the fourth quarter. Payroll employment was little changed in February, but job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Recent indicators point to slower growth of household spending and business fixed investment in the first quarter. On a 12-month basis, overall inflation has declined, largely as a result of lower energy prices; inflation for items other than food and energy remains near 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.”