US Dollar at 23-Month Low

Daily Analysis - 24/07/2017

Political Woes Weigh on Greenback

The US dollar tumbled to a 23-month low against the Euro on Monday after investor sentiment was hit by political turmoil in the United States. The current state of affairs has dampened hopes of a quick passage of President Donald Trump's stimulus package and tax reforms as congress struggles with healthcare.

Euro Remains Buoyant

The Trump administration, already reeling from allegations of Russian meddling in the US presidential election, received a fresh blow on Friday after White House spokesman Sean Spicer resigned, perpetuating the notion of disarray. The prolonged weakness in the US dollar has seen the Euro climb as much as 0.20% higher to $1.1681 after rallying to a 23-month high of $1.1683 on Friday.

The single currency has been riding on a bullish wave following comments from ECB President Mario Draghi last week pertaining to asset purchases viewed as hawkish by investors. All eyes will now be focused on the US Federal Reserve as the Open Market Committee begins a two-day meeting on Tuesday. Analysts will be looking for clues as to whether the Central Bank plans to commence its balance sheet unwind.

UK Budget Deficit Leaps

Britain's budget deficit widened in June as higher inflation since the “Brexit” referendum forced the UK government to pay more interest on its debt alongside a decline in corporate tax receipts. The deficit last month stood at GBP 6.854 billion, up 43.00% compared to the same period last year according to a report issued by the Office for National Statistics on Friday. The June shortfall was significantly bigger than the GBP 4.800 billion forecast by a survey of economists.

The ONS added that the budget deficit expanded by 8.90% on a year-over-year basis to GBP 22.800 billion during the first three months of the year. Chancellor of the Exchequer Philip Hammond has come under increasing pressure from the ruling Conservative Party to boost public spending, a development that may be deferred due to the growing budget gap. After rising in Monday morning trade, the GBPUSD pair fell back below 1.3000.

Japan Manufacturing Growth Weakens

The pace of expansion in Japan's manufacturing sector decelerated for the second consecutive month in July amid a stagnation in export demand per figures compiled by a leading private survey. On a seasonally adjusted basis, the Markit/Nikkei Japan Flash Manufacturing PMI, which measures changes in activity levels across the country’s manufacturing sector, dropped to 52.2 in July from a final 52.4 in June.

The current month’s figure marked an 8-month low, but remained firmly above 50.0, which separates contraction from expansion. The flash index for new export orders, often considered a leading indicator of the outlook for activity, slipped to 50.00 from a final 53.40 in June, while the output component slid to 51.4 from 52.2 in June. USDJPY is still trading in a strong downtrend since hitting a high of 114.500 earlier in July, reaching a one-month lower earlier before rebounding back above 111.000.

Canada Retail Sales Soar

Despite concerns about the trajectory of the economy, Canadian retail sales recorded their third straight month of robust gains in May, bolstering the case for the Bank of Canada to raise interest rates again this year. Data announced by Statistics Canada on Friday showed that sales grew by 0.60% from April to touch a record CAD 48.91 billion, far exceeding the 0.20% growth projected by analysts in a Reuters survey. Retail sales increased in 5 of the 11 sub-sectors, representing 56.00% of the total value of retail trade.

The advance in May was largely driven by a 2.40% surge in sales of motor vehicles and auto parts. The Bank of Canada lifted rates for the first time in close to seven years last week, remarking that any further tightening would depend on economic momentum. Meanwhile, the USDCAD pair is extending its multi-month losing streak, trading around the 1.2540-mark.