Is that the End for the Dollar?

The Dollar Bulls will be getting somewhat tired of licking their wounds this year, with Friday’s tumble coming off the back of unexpected silence from the FED Chair on the outlook towards monetary policy over the remainder of the year.

It’s a double whammy, with the U.S administration having already done its best to deliver Dollar weakness, though whether this will have any material impact on demand for U.S goods and services and ultimately the economy remains to be seen.

On the plus side, the weaker Dollar will provide a positive earnings outlook for U.S multinationals with the bulk of their business overseas, but with demand for foreign goods outweighing demand for U.S goods, one does wonder what impact the weak Dollar will have on domestic consumption and trade.

Material stats out of the U.S this afternoon is limited to July trade figures and the forecast is for the trade deficit to widen, this being despite persistent Dollar weakness throughout the year. If we go back to December’s goods trade numbers, the deficit stood at $65.0bn, with today’s goods trade deficit forecasted to widen from $64.01bn to $64.5bn.

The good news is that the U.S trade deficit, including both goods and services has fared better, with the trade deficit narrowing from December’s $44.3bn to $43.6bn in June, though the narrowing is certainly not spectacular and perhaps demand for U.S goods and services has struggled amidst the constant noise from the Oval Office.

We have yet to see the markets pay particular attention to the trade figures, with the obsession over wage growth and inflation likely to continue over the near-term, with today’s numbers being released in isolation, there will be some influence. It’s nonfarm payroll week and, if there was the time when the Dollar bulls needed some respite, the FED’s preferred Core PCE Price Index figures are also scheduled for release this week.

Based on forecasts, wage growth and inflation are expected to be Dollar negative and such a combination would no doubt be damming for the Dollar, though the markets will need to get through the first half of the week before getting some idea on where the FED is likely to sit in this month’s FOMC on monetary policy. Perhaps not surprising that the FED Chair decided to hold back, with key stats this week leaving Yellen with the possibility of getting it quite wrong.

While it’s all looking a little shady for the Dollar at the moment, there was some positive noise coming out of Capital Hill at the end of last week, with Gary Cohn, the Director of the National Economic Council, talking of tax reforms being rolled out before the end of the year. We will have to look to assess whether a U.S government shut down is a possible scenario before then however, following Trump’s game of chicken, the U.S president still adamant on building that wall, with news of Trump demands for trade tariffs adding to the negative sentiment towards the Dollar.

At the time of the report, the Dollar Spot Index was down 0.30% at 92.463, with any recovery in the Dollar unlikely with the markets needing to consider, not only the macroeconomic data through the week, which is particularly heavy, but also the U.S government debt ceiling, a possible shut down and of course, the dangling carrot of tax reforms and other noise from the Oval Office.

Across the Pond, the UK is on holiday and with no material stats out of the Eurozone either through the day, though it’s hard to see the EUR give up Friday’s gains, with the EUR up 0.07% at $1.19328 at the time of the report.