The Dollar lit up like a roman candle after the July Fourth holiday. The currency benefited from a stronger-than-expected June jobs report, and its move comes just two days after President Donald Trump suggested that the United States should begin manipulating its currency to better compete with China and Europe.
The first half of 2019 is in the history books and, after solid gains in the first quarter, stocks and bonds added to the bullish trend in Q2. Crude Oil was little changed and Gold was a bright spot as the commodities market saw mixed action over the past three months. Lastly, many interesting stories were told in the currency markets, including a 220% surge in Bitcoin.
The Dollar is giving back some ground against the Euro and the British Pound after several weeks of gains. The trend reversal comes as global Central Banks adopt a more dovish tilt, while Brexit uncertainty clouds the U.K., and as President Trump steps into the currency debate.
Stocks and bonds have been rallying, while yields fall and the Dollar slips, as weak economic data fuels expectations that the Federal Reserve will aggressively cut rates later in the year. That theory will be tested when the Federal Reserve Open Market Committee (FOMC) meets later this week.
The dollar rally faces a test as the first week of April brings a flood of economic data. Take a look at some (certainly not all) of the key statistics due out Monday through Friday:
- Monday: Retail Sales, Manufacturing
- Tuesday: Durable Goods
- Wednesday: ADP jobs
- Thursday: Jobless Claims
- Friday: JOBS, JOBS, JOBS
With the U.S. Dollar posting its best monthly gain of 2019 in March, surprises or disappointments in the data will help traders determine whether the rally has legs.
After experiencing losses last year, almost every asset class is moving higher through the first quarter 2019. Stocks are rallying. Bonds are bid. The dollar is up. But the biggest gains have been in the energy sector, including a sharp rebound in the price of Crude Oil.
The theme heading into 2017 was one of worry. Many in the market were worried there was going to be something to be worried about, expecting factors outside of typical “norms” would dominate the global economy. Brexit was one of the first “shocks.” Then President Donald Trump’s election in November 2016 magnified these concerns.
While equity markets took Brexit in stride, the Pound fell sharply. On June 23-24, 2016, Sterling fell from above 1.50 in the hours leading up to the vote results to settle at 1.35 at the end of the week – a 10% decline. By year end 2016, the Pound fell another 10% to close at 1.2343.
EUR/USD was in a strong uptrend throughout all of 2017, rising more than 14%. The Euro, in general, was the best performing major currency of 2017. What made the move so impressive was that it was somewhat unexpected. As discussed, the U.S. Dollar came into the year on a strong note. However, fears of political instability subsided, Eurozone growth surged, and the European Central Bank (ECB) was forced to begin withdrawing its stimulus.
Those three factors turned the market around.
As the chart below shows, the first major breakout in EUR/USD came mid-April on the weekend of the French presidential elections (April 23) when it became clear that Emmanuel Macron would defeat Marine Le Pen. The market feared Le Pen would ride in on a global wave of populism and might pull an upset – potentially leading the French to exit the EU. That did not happen, and the EUR/USD surged.
Until we figure out what’s driving the U.S. Dollar, we anticipate the following three themes will dominate trading in 2018: economic growth, global central bank policies, and global geopolitical uncertainty.
Things are going well in the global economy 10 years after the Great Recession. The Federal Reserve expects the U.S. economy will grow at 2.1% in 2018, down slightly from growth of 2.4% in 2017.
Everyone thought 2017 was going to be the year of King Dollar. Following President Donald Trump’s election on November 8, 2016, the U.S. Dollar (USD) rallied more than 4.5% against the Euro (EUR) — gaining from 1.1018 to close 2016 at 1.0521.
But that U.S. Dollar rally quickly fizzled. EUR/USD reached its low (1.0340) on January 3. Through the rest of the year, the Dollar lost 16%, closing at 1.2018 on December 29.
What happened? Not only did the Dollar abruptly turn in its tracks, but that turn came despite the fact that the Federal Reserve remained the only central bank taking a prolonged tightening stance throughout the year.