Is the Dollar’s lustre fading?

​​​​​​Today's news headlines:

  • 'Euro boosted by reports auto tariffs will be delayed’. Despite a shortfall in GDP growth and the common currency coming under renewed pressure from political criticism of EU spending rules, speculation that the US would now delay any thoughts of hitting Europe with import levies has been sufficient to pull the common currency back from recent lows. (Reuters)
  • 'Weak US retail sales, industrial output point to slowdown in economic growth’. Disappointing US economic data is adding evidence to the idea that a slowdown is taking hold after the effects of Donald Trump’s tax stimulus plan begin to fade. The Dollar may still have that safe-haven allure, but lacklustre consumer demand at a time of high employment is cause for concern. (The Globe & Mail)
  • 'Theresa May to be told: Give us your leaving date or you'll be gone in a month - regardless of Brexit deal’. The British Prime Minister will reportedly need to give a departure date when she meets senior backbench MPs later today and faces a no-confidence vote if she fails to agree to go before the summer break. (Daily Telegraph)

Global trade wars

With China showing no signs of yielding to US demands for concessions over trade, the White House is now reported to be considering a six-month delay over the implementation of tariffs on cars imported from both Europe and China into the US. The focus is on allowing manufacturers the opportunity to slow sales themselves in that period, a concession that has been sufficient to help provide a degree of support to the Euro. However, with fresh criticism being levelled at the European Commission’s fiscal rules, the potential fallout from next week’s elections for the European Parliament shouldn’t be underestimated. Gains for populist parties will have the potential to see further criticism of the rule book and could, in turn, weigh on the common currency.

US data disappoints

Despite the continued strong employment numbers, US Retail Sales data slipped into negative territory yesterday, raising fresh concerns over the outlook for the world’s largest economy. The stimulus effect of Donald Trump’s tax changes appears to be running out of steam, which could continue to heap pressure onto the Federal Reserve to ease monetary policy. Any such move would likely produce US Dollar weakness, regardless of its current popularity as a safe-haven play.

GBP/USD

The Pound sold off heavily against the US Dollar with political uncertainty dominating. The pair is now trading down at levels not seen in three months, and unless there’s some clear indication from the Federal Reserve that easier monetary policy is coming soon, the downside pressure could be sustained.

EUR/USD

The Euro continues to trade broadly sideways against the US Dollar. Italian criticism of European spending limits has largely been offset by the US delay of auto tariffs, with a net neutral result for the pair.

GBP/EUR

The Pound traded close to three-month lows against the Euro during Wednesday’s session, posting its eighth successive day of declines. UK political risk continues to dominate. Even Theresa May’s departure might not in isolation provide support to the embattled Pound.