Trump Shocks Global Markets
The Pound was slightly weakened by yesterday’s news that inflation rose in April by more than expected, to 2.7%. Today’s release of UK wage growth, shows that real wages are shrinking due to inflation. The UK’s unemployment rate, however, is at a 42-year low.
The US Dollar has been weakened by an escalating series of reports regarding US President Donald Trump and the FBI’s investigation into his administration’s ties to Russia. The global markets are adjusting to the rising possibility that Trump might be impeached for his attempt to obstruct justice.
Pound Sterling – UK Markets
The Pound remained steady against the Euro after the announcement of the UK labour market data and the wage growth index release. Today, Sterling is trading at €1.16 against the single market currency.
According to data from the Office for National Statistics (ONS), the unemployment rate in April was 4.6%, which is below the expected figure of 4.7%. This is the lowest rate since 1975. At the same time, the number of working people has increased to 74.8%. However, the ONS also reported that the wage growth index in the first three months to March was 2.1%, significantly less than the 2.7% inflation rate recorded in April. The ONS report didn’t have an immediate impact on the value of the Pound, although, according to some analysts, “that could spur demand for the currency. Unlike inflation, which the market can discount, employment is sticky.”
The Pound increased against the US Dollar, boosted by the political crisis in the US and is trading at $1.29.
US Dollar – US Markets
The US Dollar has lost more value against the Euro, dropping by 0.3% at €0.90. The American currency also dropped by 0.7% against the Yen, trading at ¥112.31. Overall, the US Dollar Index (DXY), which measures the US Dollar rate against a basket of trade partner currencies, has slid down to its lowest level since November 2016.
The Dollar weakened due to the ongoing political crisis around Trump and his campaign’s relations to Russian officials. The latest news involves president Trump, who was reported to have shared classified intelligence information, received by a US ally, with Russian foreign minister Sergey Lavrov and the Russian ambassador in the US, Sergey Kislyak. The news adds more fuel to the continuing turmoil in the White House, following the firing of FBI Director James Comey. These events raised serious doubts over president Trump’s capability to successfully implement his economic stimulus programme. More importantly, global markets and investors are worried about Trump’s increasing chances of being impeached, a scenario that is becoming more than 50% possible, according to economists.
The Dollar received additional pressure after the announced data of an unexpected slowdown in the American housing market in April. According to the report from the US Commerce Department, the “housing starts”—the number of new houses—fell by 2.6%, the lowest since November last year.
Euro – European Markets
On Wednesday, the Euro to US Dollar exchange rate was set at $1.10. The single market currency slipped from yesterday’s six month high of $1.11, but continues to perform well against its US counterpart. Eurostat’s report of the Eurozone’s GDP growing by 0.5%, in combination with political turmoil in Washington, has helped strengthen the Euro.
Analysts from Commerzbank predict the Euro could rally up to $1.13, which had been the exchange rate last recorded in November 2016. Economists from Danske Bank share a different opinion, suggesting that if the US Federal Reserve decides to hike its interest rates, this would mean the end of the Euro rally.
Other Currencies – Highlights
The Australian Dollar fell against the Pound by 0.25%, with the rate set at 1.75 AUD. Moody’s Investor Service published a report on the Australian economy. The US-based credit rating agency suggests that increasing household leverage and low wage growth, are making the country’s economy sensitive to potential external shocks. Some economists believe that the Reserve Bank of Australia (RBA) may have to cut interest rates later this year.
The New Zealand Dollar slightly increased its value against the British currency. The Kiwi to Pound exchange rate is set at 1.88 NZD. New Zealand’s currency got stronger on news coming from Tokyo. Bill English, the country’s prime minister, speaking in the Japanese capital, said that a successful Trans-Pacific Partnership (TPP) will attract the United States’ renewed interest. He added that he doesn’t accept protectionism which will prevent trade progress.