Dollar Optimism Waning

After rebounding from FOMC lows, the dollar is trending lower once more as data points overwhelmingly towards a reversal in recent strength. The combination of fundamental and technical factors warrant a deeper pullback in the dollar as the Federal Reserve sets its sights on higher rates amid a decline in the real economy. Housing data last week showed that vital components of the real economy continue to languish with spending and manufacturing pointing to a similar conclusion. The softness in the dollar could prove temporary as lacking monetary easing and interest rate forecasts see strength resume after a technical retrace. However, any further gains in the dollar would likely constrain growth further as exporters and multinationals revenues suffer from a relatively expensive currency.

Greek Prime Minister Tsipras is in Berlin, meeting with German Chancellor Angela Merkel after deposit outflow momentum in Greece accelerated last week. With the nation almost out of operating cash, pressure to make a deal is higher than ever. The Euro Group discussions that concluded Friday saw no real progress after earlier leaks pointed to an agreement between sides that was later invalidated. The gap between parties remains wide even though the latest negotiations are last chance to make a deal that keeps Greece in the Euro. Meanwhile, the ECB’s quantitative easing program is progressing with data this week forecast to show lending in the Euro Area expanded for the first time since 2012. However, the political risk from Greece is still weighing on the Euro and the Central Bank’s efforts to revive growth.