Oblivious
Material economic and political developments are afoot once again and there is a convincing argument to suggest the FX market is disregarding the lion’s share of them. Firstly, on the economic front, the Dollar has remained relatively unperturbed despite severely underwhelming soft data. The surprise came from the host of purchasing manager’s indices released earlier this week. Whilst the absolute level of these PMIs remained largely tolerable, the rate of decline in consumer and business confidence in the United States should be alarming. This risk has yet to materialise in the price of the Dollar.
What is perhaps more surprising is that PMIs this week have shown Eurozone sentiment to be notably resilient. Dig below the surface and it is evident that despite strong European soft data, the trend of a divergent Europe continues. Political headwinds in France continue to drive PMIs between German and France wider. Credit spreads show that this risk still appears to be contained, however, this could still be a potential reason why EURUSD has failed to climb higher. Perhaps also there is cause to be found on the political front.
Trump has drawn headlines during this week’s UN meet. Of most relevance to markets have been Trump’s comments regarding Russia and Ukraine. In particular, the President’s suggestion to EU nations about how they should deal with incursions by Russia in sovereign nations’ airspace and the suggestion Ukraine could reclaim all of its occupied territory, could materialise as downside risks to European currencies. This is because, if heeded, such suggestions would raise regional risk at the likely detriment to currencies including the Euro.
Discussion and Analysis by Charles Porter
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