US Dollar and the Pound Strengthen as Trump Fears Hit Asian Markets
An action-packed week ends today. Although “US Presidential elections” was the buzz word this week, there were also several economic parameters that grabbed attention. Going ahead, market participants eagerly wait to see how the newly elected US President, Donald Trump, lays out his policy directions.
Today in the UK, just released data showed that the nation’s construction output registered a strong rebound for September. In the Euro zone, annual consumer prices advanced to a 2-year high level. Across the Atlantic, investors might react to a report on consumer sentiment, as well as a speech by the Federal Reserve (Fed) Vice Chairman, Stanley Fischer.
Pound Sterling – UK Markets
The Pound is trading higher against its major peers this morning. The just out data showed that UK’s construction output rebounded in September, posting its first gain since April this year. Moving ahead, a slew of crucial data points is set for release in Britain next week. This includes the nation’s consumer price index, ILO unemployment rate and retail sales data.
Sterling has been witnessing a positive spell lately. This is a welcome change after being battered hard for the past few months following the Brexit vote. The Pound’s downward spiral has been the talk of the town all these months. However, Sterling has displayed a new-found resilience against both the US Dollar and the Euro during the previous two sessions. However, it should be noted that this strength in the Pound is not due to any positive domestic developments, but solely because its peer currencies have weakened. Yesterday, the Pound surged against the shared currency, as investors began focussing on upcoming European political events such as the Italian referendum, German and French elections.
US Dollar – US Markets
The US Dollar strengthened against most of its major peers yesterday. Data indicated that the number of Americans applying for fresh unemployment benefits declined more than anticipated last week, indicating healthy momentum in the nation’s labour market, thus increasing the prospects for an interest rate rise in December. In other economic news, monthly budget statement recorded a deficit in October. Separately, St. Louis Fed President, James Bullard, stated that he remains on board with increasing interest rate next month and reiterated his call for monetary policy to remain accommodative with just a single 0.25% rate hike over the next two to three years.
The greenback is trading mixed against the Pound and the common currency this morning, as volatility increased with investors gauging the victory of Mr. Donald Trump in the US Presidential elections and will watch his trade and foreign policies. Later today, market participants will focus on US Reuters/Michigan consumer sentiment index for further cues in the US Dollar.
Euro – European Markets
The shared currency is trading lower against the US Dollar and the Pound this morning. Data released earlier in the session showed that final reading of German consumer prices advanced in line with market expectations in October. On an annual basis, consumer prices advanced to the highest level since October 2014. Both annual and monthly inflation figures matched the preliminary estimates. Meanwhile, the nation’s wholesale prices registered the same pace of growth in October as seen in September. Further, on an annual basis, wholesale prices rebounded for the first time since June 2013. Going ahead, the Euro zone’s third quarter GDP, consumer price index and industrial production data along with Germany’s ZEW survey, due next week, will be keenly watched by market participants.
Yesterday, the European Central Bank Vice President, Vitor Constancio acknowledged the recent economic improvement in the Euro zone but expressed concern about the region’s low core inflation, which strips out volatile energy and food prices.
Other Currencies – Highlights
The Canadian Dollar is trading on a weaker footing against the greenback this morning, falling for the third consecutive session. Market participants await a speech by the Bank of Canada (BoC) Governor, Stephen Poloz, scheduled later today. Looking ahead into the next week, Canada’s existing home sales and consumer price index data, both for the month of October, are up for release.
During the previous session, the Canadian Dollar ended weaker against its US counterpart, pulled down by lower oil prices and as the greenback gained strength across the board. Some of the campaign promises made by the newly elected US President, Donald Trump such as renegotiating the North American Free Trade Agreement, have raised doubts about the continuity of US – Canada relations. This has also increased the risk of an interest rate cut by the BoC. The BoC has kept rates at 0.50% since July 2015, but acknowledged after its monetary policy meeting last month that it might introduce further rate cuts, if needed.
Fears of Trump’s trade policies have hit Asia’s emerging currencies. The Indonesian rupiah dropped more than 5%, while Malaysia’s ringgit lost 1%. The Chinese yuan is experiencing a 6-year low and the South Korean won was 1.6% lower, after the Central Bank kept interest rates low.