The US dollar gave a strong performance today as investors looked to safe haven currencies after equities and key commodities including oil showed a decline. US technology stocks are becoming a concern, causing anxiety about burgeoning US corporate debt. The dollar continues to benefit from the windfall of the significant tax cuts implemented by the Trump administration and high employment, but there is a sense that in the long term, there may be a slowing of growth across the globe and the dollar will not be immune. President Trump reiterated his wish for lower interest rates from the Federal Reserve, but to date there is no indication that the Fed is looking to adjust its course to accommodate these wishes.
Euro under pressure due to budget concerns from Italy
The euro may have made gains against sterling yesterday, due to ongoing uncertainty regarding Brexit, but elsewhere the central currency is under pressure due to the slowing of growth across the Eurozone and the continued tensions regarding the Italian budget. The European Commission is set to take the first step today towards disciplining Italy over its draft fiscal plan. However, early reports this morning that the Italian Deputy Prime Minister Matteo Salvini may be open to reviewing the government’s 2019 budget gave the euro a boost. However, it’s clear that the tension between Rome and Brussels is having an impact on the euro and until the matter is resolved, there may still be a measure of volatility ahead.
Canadian dollar struggles to make headway in uncertain times
The US dollar made the biggest gains overnight since 28 June on its Canadian counterpart; the move is attributed to the drop in oil prices. There is bearish pressure on the Loonie and it is struggling to respond to the current market conditions. There are concerns that the revised NAFTA deal, the USMCA, may struggle to pass through the Democrat-led Congress. The expectation is that Congress may request stronger enforcement mechanisms for labour and the environment. This may not kill the deal, but it does bring the possibility of a signing ceremony – and a measure of certainty for the Canadian dollar – happening at the end of the month into question.
Brexit casts a long shadow over the pound
Despite British CBI Industrial Order Expectations rebounding to a reading of ten after two successive declines, the pound is struggling due to Brexit uncertainty. As embattled PM Theresa May makes her way to Brussels to meet with the EU team, any sense of optimism appears to have been lost as critics from all sides at home and abroad find fault with the latest iteration of the deal. Bank of England Governor Mark Carney did little to help the pound yesterday, but clarified that it was the bank’s job to look at worst-case scenarios to protect the UK against another crash. With all eyes on Brexit, the release of the Public Sector Net Borrowing may not have any impact, but is a key measure of the economic picture in the UK and may be of greater significance if and when the Brexit dust settles.
Subdued performance for the Japanese yen
The yen put in a subdued performance yesterday and shows little signs of recovery against the US dollar which continues to rise, seemingly unchecked. However, the yen continues to hold its ground as a safe haven currency while other currencies struggle. There is also the possibility of some change after Japan’s national consumer price index for October is released overnight.