The US Dollar is trading mixed once again this morning, as a mix of politics and data continues to influence its direction. The US Dollar fell to a fresh 7-month low in its pairing with the broadly higher British Pound (approximately September 30) as Sterling benefited from relatively good GDP data, and some mixed, but not-firm, Brexit information. The Greenback fell against the Euro and Swiss this morning, pushing EURUSD within a touch of the highest level since the November US election achieved on Wednesday, after better than expected Eurozone Flash CPI data. The US Dollar fared much better against the Commodity Currencies, and held on to most of its gains versus the yen this week. The Canadian Dollar fell to a fresh nearly 14.5-month low despite a modest uptick in oil prices ahead of the Canadian GDP release at 8:30am ET. News about the Trump administration at least potentially renegotiating NAFTA coupled with the recent tariff on Canadian lumber weighed on the Loonie.
President Donald Trump’s tax law changes were written down on one page consisting of 224 words. There was no mention of a border tax, but there was an end to inheritance tax, an end to the alternative minimum tax, and a reduction in the number of tax rates. While this is theoretically good for US Equities and growth, there is a great deal of skepticism about how the administration will implement this while agreeing to a budget deal with Congress as the debt ceiling looms in the background.
Advance US GDP data is the major domestic data point today, set for release this morning at 8:30 AM ET.
The Loonie has been under significant pressure, falling to a fresh 14.5-month low versus the US Dollar today, as a result of the recently renewed discussions, in the media, about the potential US re-negotiation of NAFTA. Indeed, this has been a tough week for the Loonie, as the Trump administration introduced a tariff on Canadian lumber, Canadian headline CPI missed last Friday, and oil prices have remained at the lower end of their ranges. The Bank of Canada (BoC) can certainly rest on their previously stressed uncertainty to stave off any interest rate increases for the foreseeable future. Canadian GDP MoM set for release this morning, and a lackluster release could put further pressure on the Loonie as it helps underpin the case to leave interest rates unchanged or even shift the BoC back to a more dovish bent.
The Euro traded higher in its pairing with the Buck after better than expected Eurozone Flash CPI YoY data. Indeed, the headline number came in at +1.9% compared to 1.8% expected, and the +1.5% previous. This is very close to the 2% inflation target, but it was achieved on the backdrop of aggressive European Central Bank (ECB) Quantitative Easing (QE). That said, the data is certainly positive, and helped EURUSD push higher. Yesterday, the ECB left rates unchanged, and ECB President Mario Draghi reigned the Euro bulls with an unambiguous confirmation of ultra-easy policy for the foreseeable future yet again. The only positive comment was that the Eurozone economy was now experiencing a “broad based” rather than “patchy” recovery.
The British Pound continued its ascent to a fresh 7-month high this morning on UK Prelim GDP data. While the number came in at a very near miss at +0.3% compared to +0.4% expected, the previous release was revised up to +0.7% from +0.6% which was ultimately taken as positive/on-target. Yesterday, the Telegraph newspaper tweeted that the “EU trade commissioner says that the bloc will do post-Brexit free trade deal with UK for sure.” This did manage to see a push higher for GBPEUR but really it was Euro weakness that was the driver. Indeed, German Chancellor Merkel undermined this Telegraph tweet when addressing German Parliament, saying “a third party state-and that’s what Britain will be-can’t and won’t be able to have the same rights, let alone a better position than a member of the European Union.”
So far the UK economy is still in that “sweet spot” described by Bank of England member Broadbent, and the market took the preliminary GDP release this morning as confirmation of this which ultimately helped push the Pound higher. On the Brexit front, the FT is reporting that the EU is preparing for post-Brexit membership of a United Ireland, and the Times newspaper yesterday reported a YouGov poll that found that 45% of voters agreed that, with hindsight, Britain was wrong to leave the EU, while 43% said it was right and 12% did not know.