Dollar drops to one-week low amid US shutdown
December 28, 2018
Over the festive period, it has all but ground to a halt for sterling with a big Brexit sized elephant still in the room. With little filling the data calendar up until the new year, all eyes will be firmly fixated on Brexit headlines that will likely resume in the new year. Parliament doesn’t reconvene until the 7th of January, but markets will await political headlines before then.
The euro remains one of the main beneficiaries of a weakening dollar as it gained over half a percentage point yesterday in the run up to its 20th birthday. The single currency has also performed relatively well this morning in the run up to Germany inflation readings. The national average Consumer Price Index is released at 13:30 GMT today, but preliminary signs from regional releases look favourable. This comes just in time for the Eurozone as it battles with declining inflationary pressures.
Yesterday, the dollar index pared back recent gains in what is already an unusually volatile Christmas period. Concerns keep mounting on a partial government shutdown, as Donald Trump continues to struggle with raising funds to build his promised wall in the Mexican border. Thus far the concerns seem isolated to the equity markets with the VIX Index, a popular measure of implied volatility, peaking on Wednesday despite the equity market bounce of over 1000 points in the Dow Jones index. However, Thursday’s initial losses kept analysts hesitating whether it was a bullish signal or not. The reading of the Consumer Confidence for December may have played a role further souring sentiment as the print came in below the prior and expected figures. Regardless, the dollar remains on the back foot as the government shutdown threatens to drag into the New Year. Today, the Chicago Purchasing Manager Index will see the light at 14:45 GMT.
Oil prices keep marking the beat for the pace of the loonie, which failed in benefiting from yesterday’s weaker dollar. There was an article on Bloomberg this morning about how oil may aim for $70 during 2019 as fears of a recession recede. This is of course “views dressed as news”, but if for example the US-Sino trade war comes to a benign conclusion in Spring, this can become a topic of strength for the loonie in 2019. In addition, the CFIB Business Barometer reached the second lowest level since the financial crisis, as what can be a “deserved” response of recent dovish Bank of Canada statements. The data calendar will be empty until new year’s eve.