USD weakness as mild tapering looms into view

A drop in the value of the US Dollar flattered most other currencies on Monday. The US Dollar’s largest drop since May was caused by increased expectations of an end or at least the beginning of the end, of cheap plentiful money in the US. Recent data would suggest The Fed will be cautious and that has calmed nerves a little. This may be a short term drop in the Dollar’s value though. The US Federal Reserve has a meeting on Friday, so anything could be said before or during that get together. Also, the Delta variant is not conquered yet, so there is scope for further lockdowns and restrictions, all of which would strengthen the USD through safe-haven buying. Also, having approved a new covid vaccine, the US Food and Drug Administration may have triggered the next step-change in the recovery of the US economy.

Weaker Dollar boosts other currency pairs

However, the current USD weakness has allowed the Pound, Euro and others to gain strength. GBPUSD is up a cent at $1.3730 this morning, EURUSD is up a similar amount at $1.1745. The Aussie Dollar gained a little more than these and has pushed the GBPAUD rate down below AUD 1.90 again. So has the New Zealand Dollar GBPNZD is down to NZD 1.9825 as I write.

The Pound has recovered from the dip we saw yesterday. That dropped GBPEUR down to €1.1630 at one stage after a rash of mediocre UK purchasing managers indices but it is pressing €1.17 this morning. A note of caution should be sounded here. UK businesses are reporting serious supply shortages; the worst on record, according to the CBI. Shipping problems and the impact of covid in Malaysia and other Asian manufacturing centres are all playing their part. For now though, as there is no meaningful UK data today…or for the rest of the week for that matter…, I would expect the current rally to perter out.

Strong NZ retail sales boost NZD

The Kiwi Dollar got some help from solid NZ retail sales overnight. The core reading of 3.4% growth in Q2 is very encouraging but we do know NZ has been locked down since then, so the boost is tempered by that fact. We get NZ trade balance data tonight, so the NZD will have another volatile one.

This morning’s German GDP data was a little better than expected and that has supported the Euro. 9.8% growth in the year to Q2 was a little better than the market forecast of 9.6%. As Germany is the EU’s largest economy, it is significant.

The rest of the day is dominated by US data in the form of new homes sales numbers and the weekly crude oil stocks data. Both are watched by the Federal Reserve and the Treasury but USD traders are probably more focussed on the Fed meeting on Friday and Thursday’s employment data.

And there are times when you wonder what is going on. I cite the sign son marble statues in Cambridge University which explain that, and I am precising their notes here, just because the statue is made of marble (which is white) it does reflect the diversity of ancient Rome or Greece. To suggest that those bright enough to get accepted to Cambridge are too stupid to understand the concept of the artistic use of marble is astonishing. Please stop the wokeness now. It’s becoming demeaning.

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