U.S. Dollar falls on chances Fed slows tightening

The U.S. Dollar is trading in overall weaker ranges this morning as a result of strong market reaction to comments from Fed chairman Jerome Powell during his address to the Economic Club of New York.

Overview

In his speech, Powell said that the Fed was close to reaching the neutral interest rate level, in fact, that currently we were just below that ideal level where speculation on Fed action fades.

The idea of less hikes propelled equity markets as stock exchanges rejoiced in a big way, but the buck’s run on the prospect of higher rates and more hikes may be done for now. The greenback is close to 1.0% weaker from the start of the week per the Bloomberg Dollar Spot index.

Personal Income and Personal Spending were released earlier showing higher expansion than expected at 0.5% and 0.6% respectively for the month of October. The economy is certainly is a good situation right now, but the announcement by General Motors of planned closures and downsizing may be the reason the Fed is considering not adding to borrowing costs via rates. If this trend continues, the dollar will remain under pressure despite good data.

What to Watch Today...

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EUR

The Euro is higher as the rout against the U.S. Dollar helped mount a recovery. Although Brexit and other long-term issues have diminished faith in the shared currency in recent months, Euro bulls are hoping that a return to monetary policy normalization will lift it starting in December when the European Central bank is set to meet.

Nevertheless, confidence among businesses as well as consumers is down in the Euro-zone, reaching an 11-month streak of pessimism. The lack of confidence may lead to lower capital expenditures, less employment, and thus less sustainability for the shared economy. We see a recovery for Euro based on similarities to the beginning of this year, when the dollar got crushed by the prospect of an increase in interest rates in other regions.

GBP

Sterling remains in vulnerable levels based on news that Prime Minister Theresa May is sure that a vote against her Brexit deal in Parliament will mean a no-deal scenario. The idea of losing out on all of the benefits of trading with the single-market bloc is devastating to businesses whose contingency plans may be too weak to handle such a hectic reality.

There will be a live TV debate on December 9th between PM May and Labour Party leader Corbyn explicitly on the deal that will be voted on December 11th. A people’s vote or new referendum is out of the question, per the Prime Minister.