The US Dollar continues to gain ground, largely driven by its safe-haven allure and the fact that the outlook for US Treasury yields remains attractive when compared with global counterparts. At least, for now, it’s not the underlying US economy that’s lending support, although expectations continue to build that Friday’s US Q1 Gross Domestic Product (GDP) print will impress. However, a strong Dollar does little to help Donald Trump’s ambitions, and the potential for another spat with the Federal Reserve over monetary policy shouldn’t be ignored. For now, the Greenback seems well positioned to keep appreciating.
There are a number of positive factors relating to the Pound right now, but these don’t appear to have been fully priced into the currency. Theresa May has avoided a leadership challenge which in turn plays down the risk of a general election. Recent economic releases have been broadly upbeat and speculative positions surrounding Sterling have turned positive for the first time since last summer. Despite all this, the uncertainty that continues to linger over Brexit is weighing on the Pound, although the potential exists for at least a temporary break higher.
The Pound fell to two-month lows against the Greenback yesterday, although this appeared to be very much a story of US Dollar strength. With another quiet day ahead in terms of UK economic data, shaking off these downside pressures could remain difficult.
The Euro slumped to lows not seen in almost two years against the US Dollar during yesterday’s session. Pessimism continues to mount over the outlook for the Eurozone economy. Comments expected from European Central Bank (ECB) members later today regarding monetary policy could provide further direction for the common currency.
Worse-than-expected German Ifo data released yesterday was sufficient to pull the Pound away from recent lows against the Euro, although upside has been limited. A dovish tone from ECB board members in today’s comments could, however, be sufficient to provide further support.