Tag: Euro

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Euro vs. Dollar: Heavyweight Match Up of the Year!

Euro vs. Dollar

Heavyweight Match Up of the Year!

The heavy weight bout of the year (to-date) is taking place right now.  We’re talking about the Euro and how it is valued against the U.S. Dollar.  As we have recently been reporting, the Euro is under a great deal of stress right now due to Brexit and the political issues currently facing multiple EU members.

Some more pressure was applied to the Euro this week when the ECB indicated that it has no intention to withdraw its massive stimulus program.   Couple this with stronger than anticipated economic news for the United States, resulting in a slight strengthening of the Dollar, and the Euro appears ripe for continued weakening against the Greenback.

New EU Numbers…

Numbers just released by the EU reflecting its March confidence figures shows the actual numbers were lower than the published expectations.  The economic sentiment indicator came in at 107.9, below the previous 108.00 and well below the expected 108.2.  Consumer confidence however remained unchanged at -5.

Pending March inflation numbers have yet to be released yet they are expected to have advanced less than during February.  Unless the final revision of the US Q4 GDP is substantially greater than the previous estimate of 1.9%, it is expected this updated data will have little or no effect on the currency pairing.

ECB Hammer about to DROP…

It is expected by most currency analysts that the Euro exchange rate values are about to be hit by Thor’s Hammer in the shape of the European Central Bank as analysts from a prominent Scandinavian economic research house has suggested that another round of quantitative easing is about to enacted.

Many economists believe that in the coming months, the ECB will begin releasing warning statements that another such effort will be needed to stabilize several member economies, with the ECB taking a more hawkish stance by the end of this year.

It is important to remember that the common belief was that the ECB was poised to begin shutting down the quantitative easing program?  The value of the Euro was essentially based on this assumption.  Now however, if the ECB shifts its stance (as expected) this could trigger additional (notable) weakening of the Euro.

Having said that, it is important to recall that the Euro plunged in December when the ECB announced another extension to the quantitative easing program.  If this was a formula for the Euro dipping then…it is expected a repeat could be in the cards!

An Unexpected Inflation Deviation

At this point, the 2% inflation target as set by the ECB looks more and more unlikely.  In fact, it appears that inflation is headed in the opposite direction from where the European Central Bank needs it to go.

The most recent inflation data for Germany, Spain and Belgium indicates that the Eurozone inflation rate has dropped back to levels well below 2% in March.  In fact, HICP indicates that the German inflation rate declined to 1.5% down from 2.2% in February…when markets had actually forecast a rise of 1.9%

In Spain it actually dropped to 2.1% from 3.0% and Belgium recorded a decline to 2.3% from 3.0%.  This published inflation data again indicates another factor in the Euro’s underperformance and underscores again why the ECB is not keen on withdrawing its stimulus at this time.

If you look at the current Euro exchange rate, it is obvious that we are seeing a reaction to several factors including news the ECB is very concerned with the direction inflation is headed.  It is also likely that the ECB is equally unhappy with the market’s reaction to their March policy meeting.

EURO/USD Slipping Below Parity?

Citibank also sees more bad news on the horizon for the Euro. These analysts are suggesting that the current price action for the EUR/USD is remarkably consistent with what we realized in October and November of 1999, thus suggesting “…we will see levels below parity over the medium term.”

At that time, the market entered a short EUR/USD position.  If history repeats itself and the EUR/USD falls below parity you can be assured that the EUR/GBP may fall sharply too owning to those same correlations.

THE BOTTOM LINE…

U.S. economic data has been quite strong in recent weeks.  Durable Goods Orders are reflecting robust gains, New Home Sales have risen 6.1% and the Current Account deficit is shrinking…..all potentially positive indicators for the Greenback moving forward.

The March Personal Consumption Expenditure (PCE) numbers as released reflect a 1.8% rate… beating February’s 1.7% yet still below a hoped for 2.0%.  When this data is coupled with the Michigan Sentiment Rating of 96.9, up from February’s 96.3 the overall effect is considered negligible regarding its impact on the Dollar.

Overall, the Dollar may continue to strengthen against a basket of currencies in the near term and specifically against the Euro.  When you consider the overall volume of data that must be collected and correlated to effectively manage currency trading today, it is even more obvious that working with a preeminent foreign exchange partner like Mosaica FX is even more essential.

Let us prove our worth to you today.  Contact one of our experienced currency trading Managers for a briefing on how you should manage your currency trading in today’s market.

 

 

Business, Economy

Pound Floats Higher Against the Euro!

Pound Floats Higher Against the Euro!

This week United Kingdom Chancellor Philip Hammond delivered his first Budget to the UK government for review.  Almost immediately as he began his remarks outlining his intentions both in the near term and long term for the UK economy…..the Pound began to soar against the Euro!

The Pound was tethered at a low of 1.1497 just an hour before the Chancellor began his remarks and yet as his speech about the new Budget continued, the Pound rose to 1.1542 against the Euro.

While the Pound mitigated its rise somewhat as the Leader of the Opposition party Jeremy Corbyn began his assessment of the Chancellors remarks……it still only dipped back to 1.1536.  An overall buoyant response to Chancellor Hammonds budget address.

The High Points…

There were several main points that supported the positive trajectory of the Pound during the release of the Ruling Party’s Budget.

The “theme” of the budget and its supportive remarks by the Chancellor is, “….building the foundations of a stronger, fairer, more global Britain.”  However, don’t be deceived by the reference to a “…more global Britain.”  This is a direct reference to Britain requiring a more equitable treatment from not just its European neighbors but from other trading partners around the world.

As this is one of the major themes also resonating with the populace after the Brexit vote, the Chancellor seems to be supporting these ideas as “…what is good for Britain….is also good for the world,” as opposed to a reverse of that order during the past decade or more.

The Chancellor expressed the expectation for stronger growth figures over the next year of 2% with continual similar growth over the next five years.

Inflation is expected to rise by 2.4% for 2017 but is predicted to fall to 2.3% for 2018 and then to level out around 2% for 2019 and 2020.

Borrowing also was revised lower for the years following 2017 with Mr. Hammond promising to not “saddle our children,” with exurbanite debt in the years to come.  In fact, the Chancellor indicated debt levels were due to fall from 86.8% this year to 79.8% by 2021.

The Pound Floats across the Pond….

While the Chancellors speech helped to float the Pound higher against the Euro, not surprisingly it also buoyed the GPB against the U.S. dollar.

Prior to Mr. Hammond’s budget address the Pound was trading against the Greenback at $1.2140.  However, after the Chancellor began his speech the currency trading rate went to $1.2182….dipping slightly to $1.2175 as the day dragged on.

The upward trends recognized by the UK currency when trading against both the Euro and the U.S. dollar is a dramatic contrast to trading levels seen before the release of the Ruling Party’s Budget and the Chancellor’s address explaining the governments budgetary plans to support it.

While the Pound will most likely remain in a stable and similar position against the Euro in the coming weeks, its trading rate against the Greenback is less certain.

Will the Union Jack Continue to Wave?

If the Fed chooses to implement a rate increase in the next week, this will no doubt impact the Pound rate trading against the U.S. dollar….as it will surely impact a basket of currencies as well.  Just as several monetary and fiscal policies in the UK as it engineers its Brexit structural advancements will also impact the Pound.

As Xtrade analyst Paul Sirani has pointed out, “…While today has sparked a flood of confidence behind the Pound, the UK economy has a few more hurdles to jump as it begins to withdraw from the single market.” 

It is specifically due to reasons like these that it is imperative that companies relying on accurate foreign currency trading forecasts partner with advanced development currency managers such as MosaicaFX. Don’t leave your profits to chance.  Focus on your business and let us focus on your currency profits.

Contact us today and let us explain how we will help you.

 

 

Business, Economy3 Comments

The U.S. Dollars Hit A 13-Year High. Let’s Talk About Why

The U.S. Dollars Hit A 13-Year High.

Let’s Talk About Why (And Where It’s Going)

Doesn’t it seem as if every place you look, there is talk about the U.S. dollar and what is in store for it?  Let’s face it; the Presidential election last week has made a “yuuuge” impact on the value of the U.S. dollar, and in turn the value of numerous currencies traded against the almighty greenback.

Given the sharp upward trajectory of the U.S. dollar over the last week, the first question on everyone’s mind is: Can we expect some type of “correction” in the coming weeks?  Conventional wisdom says that a correction is likely; however, reports indicate that it will probably be a shallow one.  Most economists believe that Trump’s unexpected win was a game changer for the U.S. dollar and that gains are here to stay.

What is the explanation for such an aggressive uptick in the U.S. dollar?  Was Trump’s election enough on its own to merit to account for this surge? The answer is quite possibly, yes.  Trump has made no secret that he plans to enact a tremendous spending program to address the crumbling infrastructure in the United States.

This approach will address several constructs on multiple fronts.  Such action would be a long-term investment in critical programs that would ensure our transportation needs are met for decades to come.  This would include highways, tunnels, airports, heavy and light rail service and bridges, all of which need repairs and improvements. This effort would also act as a jobs program that would help to provide long-term, high-paying incomes to Americans in need of such work.

The next most common question about the future of the Dollar is: Can we expect it to remain strong for the foreseeable future?  It is expected that the prospect of a December rate hike by the Fed will keep the U.S. dollar going.  When you consider that U.S. stocks have hit record highs in the last week, one would expect that if that bullish trend continues; it will provide the Federal Reserve even more leeway to raise interest rates.  This will also be the last chance for Janet Yellen to hike the rates before a new Trump Administration takes over.

The cumulative effect of these actions taken together is a strong indicator that the direction of the U.S. dollar will continue.  The Trump ascendency to the Presidency and his plans for infrastructure spending, the bullish trajectory of the U.S. Stock Market, ongoing signals from the Fed and Chairman Yellen that an interest rate hike is in the offing… all are reasons (barring some unforeseen calamity) we can expect the U.S. dollar to remain strong for the near future.

Taken as a whole, the market is banking on a rate hike with Fed fund futures pricing in an 84% chance of tightening taking place.  The focus this week will be on today’s testimony by Yellen before the Joint Economic Committee.  She is almost certainly going to reiterate her view that rates should rise next month which would completely validate the U.S. dollar’s ongoing rally… and potentially send it to new highs.

The bottom line: The gains for the U.S. dollar are not a fluke.  They are a reaction to several fluid positions that have been placed in motion by the electorate and the Federal Reserve.  Smart money is that once this train has left the station, it will most likely continue on for some time.

Please Note:  Mosaica FX LLC is not a financial services company that provides investment analysis or recommendations.  We are simply providing a compilation of data points as recognized and distributed by various economic providers.

 

 

Business, EconomyLeave a comment

Brexit…Update No. 3

Brexit…Update No. 3

It has now been over four months since the EU shattering Brexit vote where the will of the UK citizenry declared themselves free from the constraints of the European Union’s economic shackles.

As many stalwarts of the EU had proclaimed the immediate and disastrous downfall of the UK’s economy based solely on the vote itself…..we figured it was time that we take a brief glance at the latest reverberations that were ignited by that historic vote.  You may be somewhat surprised by what we found.

UK economic growth did indeed slow down following the vote in June…but less than predicted.  The Office for National Statistics said GDP grew in the UK by 0.5% in the third quarter (July to September), compared to 0.7% in the previous quarter.

Chancellor Philip Hammond stated, “…The fundamentals of the UK economy are strong and today’s data shows that the economy is (quite) resilient.”   The Chief Economist for the Office for National Statistics said, “…..There is little evidence that Britain’s vote to leave the EU had a pronounced impact on the UK economy do to Brexit.” 

The other notable quotes attributed to the Chancellor were also positive as a whole.  “While quarterly growth has fallen slightly, the economy has continued to expand at a rate broadly similar to that seen since 2015 and there is little evidence of a pronounced effect in the immediate aftermath of the vote,” said Hammond.  He went on to note that the “dominant” services industries continued to offset “further” falls in new construction while manufacturing “continue” to remain overall flat.

Positive Outcomes Exceeded Negative Expectations!

As a consensus forecast of economists had predicted a “post Brexit” growth rate of just 0.3%.  This anemic number had been broadcast daily leading up to the actual vote as an expected result if the UK opted to jettison the EU relationship.  In fact, many economists in the UK government had actually indicated that if Brexit carried the day, the country would be “lucky” to see a 0.3% rate of GDP growth!  Hence, a growth rate of 0.5% was seen as a welcome surprise.

On a year-to-year basis, growth was also higher than expected, with UK GDP 2.3% higher over the course of the last 12 months, again…..compared to a forecast of only 2.1%.  Once again, this was considered an unexpected positive for the economy.  Many also saw it as a repudiation of the naysayers who claimed a negative economic impact was almost assured post-Brexit!

While the data obviously makes a positive first statement, as Samuel Tombs of Pantheon Macroeconomics points out, preliminary GDP estimates, due to the very nature of their reporting, often overestimate growth, so that number could easily be revised downwards a bit at the next update.

As inflation has surged higher in the UK as a consequence of the pound’s fall in recent weeks, this may also fuel some future Brexit fall-out.  To be specific, inflation hit 1% in October, the first time in close to two years it reached a full measured point.  It is possible that inflation may continue to climb as the result of the pounds drop will be fully felt in the months to come.  Some economists believe that inflation could eventually touch 3.0% – 3.5% in 2017.  As Tombs stated recently, “….the adverse consequences of the Brexit vote will become increasingly clear as (if) inflation shoots up and firms postpone investment over the coming quarters.”

Coutts Countenance

As Coutts Investments has stated, the pound remains the biggest economic casualty so far since Brexit. Since it plummeted in the days following the vote and has languished at multi-decade lows ever since, the result has been the birth of the current rise in inflation.  However, Coutts states in their latest investment overview, “…..We think (the) Sterling may be pricing in too much pessimism ——we don’t see a UK recession looming and we believe the longer-term impact of Brexit on the economy would not be disastrous.”

Coutts went on to note, “…..Though the ultimate impact on the UK’s long-term future remains uncertain, we believe currency markets are too pessimistic.”  Measured in various ways, the Sterling looks cheap by long-term standards making the UK assets more affordable for overseas buyers.  This would be expected to invigorate investments flowing into the UK, thus driving the Sterling higher eventually.  While this may take a while as the process of leaving the UK unfolds, it still seems to represent a minimally damaging effect in the long-term.

While much of the complete picture of the Brexit impact is still poised to unfold, there are two very important points to not overlook at this time.  First, the UK is still standing.  It did not vanish in a black puff of smoke and in fact, it so far seems to be weathering the storm quite well.  One must always remember that the British are a tough lot.  They have always been a proud people and are not easily brought to their knees.  Second, the real test will be when Prime Minister Theresa May begins the actual technical process of “unspooling,” the UK from the EU.  IF, that surgical procedure is done with great skill it will no doubt minimize the potential negative outcomes many believe are still on the horizon.   As in any complex procedure…the operation can be a success…but you can still lose the patient.

Only time will tell… if GOD and Theresa May can save the Queen!