The US Dollar Struggles to Find Demand on President's Day
What’s been happening?
Pound Sterling – UK Markets
The British pound recorded small gains against the dollar and stayed unchanged vs the euro despite the political drama in the UK. Seven lawmakers from the Labour Party on Monday announced they have resigned. Speaking to reporters, Lawmaker Berger explained that they would now sit in the Parliament as an ‘independent group of MPs’. Moreover, lawmaker Chris Leslie said that the evidence of the Labour Party’s betrayal on Brexit was clear to see and added that it would be irresponsible for them to allow the party’s leader Corbyn to become the next Prime Minister.
Later in the day, following his meeting with the EU’s Barnier, British Brexit Secretary Barclay stated that he had a positive meeting with Barnier and announced that they will be meeting one more time later in the week. On the other hand, European Commission President Jean-Claude Juncker said that the EU wouldn't oppose an extension to Brexit if the UK were to request it. Meanwhile, the only data from the UK showed that the Rightmove House Price Index rose by 0.2% on a yearly basis in February following January’s 0.4% growth and failed to trigger a market reaction.
US Dollar – US Markets
The greenback continued to weaken against its major rivals on Monday and the US Dollar Index closed the third straight day with losses. In the absence of macroeconomic data releases due to the President’s Day holiday in the U.S., last Friday’s dovish Fed commentary caused the currency to remain under modest selling pressure.
Euro – European Markets
The shared currency rose vs the dollar on Monday while staying flat against the British pound. However, the lack of fundamental drivers on Monday suggested that the euro’s daily rebound was a technical correction and the currency is likely to remain vulnerable to weak data.
In an interview with Reuters over the weekend, European Central Bank (ECB) Governing Council member Francois Villeroy de Galhau said that the key question for the ECB was whether or not the economic slowdown was temporary and added that the timing of the rate hike would depend on the answer. “The economic outlook is clouded by the threat of protectionism and Brexit. The ECB would be pragmatic in use of its main policy tools,” Villeroy explained. Later in the day, the ECB’s chief economist, Peter Praet stated that the ECB could adopt guidance on rates complemented by other measures. “Biggest problem by far is political uncertainties persisting for so long, related to protectionism, Brexit,” Praet explained. “Question is how the financial sector would react; there's risk banks could act even more pro-cyclically than usual.”
What’s coming up?
UK: The Office for National Statistics on Tuesday will publish its labour market report, which is expected to show a 2.4K increase in the claimant count rate in February. The publication will also include the average earnings figures as well as the unemployment rate.
US: The NAHB’s Housing Market Index will be the only data released from the U.S.
EU: Current account and construction output figures will be featured from the euro area on Tuesday. More importantly, the ZEW is scheduled to release the Economic Sentiment data for both Germany and the eurozone.