“By Default” rise could be start of period of dollar strength
The dollar index, which judges the performance of the greenback against the currencies of six of its “major” trading partners rose above 94.00 yesterday as the problems suffered by the U.K. and Eurozone this week weighed on their currencies.
The index is outmoded since it includes the Swedish Kroner and Swiss Franc in its calculations. While Switzerland has significant trade with the U.S, the top six current exporters to the U.S. are China, Mexico, Canada, Japan, Germany and the U.K. The dollar index is made up of The Euro, Sterling, Yen, Canadian dollar, Swedish Kroner and Swiss Franc. There is clearly some room for the index to be made more meaningful.
Contrasting monetary policy intentions are a major factor in current dollar strength. While BoE Governor Mark Carney has tentatively been hinting at a rate hike next month but with no mention of a follow through, His American counterpart, Janet Yellen has been openly removing data dependency as a factor for a hike. She has also been at pains to ensure that the FOMC remains ahead of the curve with other Central Banks still in a reactive mode.
U.K. on brink of Political Chaos
A former chairman of the ruling Conservative party openly challenged Prime Minister Theresa May over her fitness to remain as leader of the party yesterday. In the wake of a very downbeat party conference, support for Mrs May, which was dwindling, has fallen considerably.
May’s error strewn premiership could ironically be doomed by a series of events that have conspired against her over which she has little control. In the keynote speech to the conference, she was overtaken by a heavy cold, leading to a laboured performance when a strong, resolute rallying call was needed, A breach of security which allowed a heckler to approach mid-speech was unfortunate while two undermining sets of Brexit proposals from her Foreign Secretary have left her close to the edge.
The pound has begun to fall again reaching close to the important 1.3000 level versus the dollar and 0.9000 against a common currency suffering its own political headwinds. When Parliament reconvenes following the party conferences, the opposition is bound to pressure Mrs May even more and calls for a General Election will become ever more strident and hard to resist.
It is a hackneyed expression in politics to say a Government faces a winter of discontent but Mrs may could be facing an illness to her political career that could be far more fatal than a common cold.
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Employment data to provide further cause for rate hike
Some traders will rush back to the office after a fifteen-minute lunch break eager to trade through the data, others will take a leisurely two-hour break seeing the numbers as “froth on the trading cappuccino. As ever, the truth lies somewhere in the middle. The U.S. non-farm payrolls report is a significant piece of data that warrants interest due to its all-encompassing effect on several parts of the economy. It is, however, also a notoriously difficult number to predict. The insistence of the Bureau of Labour Statistics on releasing what is not much better than an estimate on the first Friday of the months is baffling since there are often huge revisions to the data.
Be that as it may, since the U.S. dismantled its manufacturing base downgrading the significance of trade data, employment has been the release that excites most attention. Today’s data is expected to be strong following a better than expected report on private employment earlier in the week. A median +200k new jobs looks a little high since the average is closer to +180k but given the optimism surrounding the U.S. economy this is entirely plausible.
