The U.S. Dollar continues its downward spiral as risk-appetite rises and adds to the recovery across the board.
Overview
With only a few exceptions such as the Mexican Peso, the buck is crumbling against both majors and emerging-market currencies. Yesterday marked a major turnaround for the mood in markets as U.S. stocks went on heavy recovery mode, finally welcoming the emergency aid rate cuts from the Fed. Additionally, the health risks associated with the coronavirus have not faded, but there seems to be less worry about its deadliness and more about the risks to growth.
Thus far, the Bank of Canada has joined the U.S. Fed in cutting interest rates to ease the financial environment and reduce the chances of contraction and recession. The shock to supply chains has taken a toll and upcoming data releases will show it, but what the markets are pricing in now is the idea that 2020 will ultimately lead to a recovery and less gloomy output than forecast by many. Besides the virus, other pressures such as Brexit and the War in Syria and lack of fiscal spending remain a drag on global activity. We think the current mood bodes poorly for the buck, but swings can come at any point and quite intense the other way if perceived again as a safe-haven to other risk items.
What to Watch Today…
- Factory Orders 10AM
Complete Economic Calendar can be found here.
EUR
The Euro is trading around its highest level since January 6th, almost entirely reversing the losses experienced in the first two months of the year. It is said that FX market volatility is back with a vengeance and what seemed unlikely for the shared currency a month ago is materializing now: value rising over economic merit.
Retail Sales figures improved for the bloc overall as it climbed by 0.6% in January, certainly a change from the dismal contraction of (-1.6%) in December. Another minor sign of progress is that German Construction PMI also improved from January to February. We shall see when there will be resistance, but thus far the rise in value seems like it may have been overdue.
GBP
The Pound returned to gains following news that the Bank of England may not necessarily join the Fed and BOC in cutting its main interest rate by 50 basis points. Lately, Sterling has been affected by political tensions with the EU over how to move forward on trade and new government in Ireland looking at the possibility of unifying with Northern Ireland. It is a mixed bag for Pound, but we continue to believe the currency will be facing problems as post-Brexit world gets murkier.
It will not affect currency markets, but news broke over the weekend that Prime Minister Boris Johnson and his girlfriend will be getting married and they are expecting their first child. Cheers to them!
