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US Dollar Exchange Rate Rises on Global Slowdown, Trade Fears

May 30, 2019 10:49 am | Modified May 30, 2019 1:07 pm
Brexit, CAD, Central Banks, EUR, GBP, USD | BY Charlie Murray

Concern surrounding the mounting threat of a global economic slowdown has bolstered support for the US Dollar in overnight trade. Against the US Dollar (EUR/USD) the Euro has resumed the slide it started at the beginning of the week, while the Pound (GBP/USD) continues to languish around lows for the year-to-date.

By the middle of Thursday’s European session, the Pound was trading at levels of 1.2627 against the US Dollar (GBP/USD), while trading at 1.1340 against the Euro (GBP/EUR).

China Trade Dispute Escalates Boosting US Dollar Exchange Rate

There are no signs of any quick resolution emerging when it comes to the ongoing trade stand-off between Washington and Beijing. Suggestions are that any settlement may not be seen until the end of the year, and that China’s resolve is strengthening, with Beijing now threatening to cut off US access to rare earth minerals. This potential escalation stands to further damage trade on a global basis, is driving risk aversion, and in turn, is lending support to safe-haven currencies like the US Dollar, with the likes of the Pound and Euro being left to flounder as a result.

Italian Budget Overspend – Euro Exchange Rate Faces Pressure

The coalition government in Rome has been under repeated pressure to reign in its spending to keep within European Commission rules, but the country continues to miss its targets here. Italy now runs the risk of a EUR 3 billion penalty for failure to curtail its deficit, although gains by populist parties in last weekend’s elections could make such a decision difficult to enforce. At a time when the European Union needs to consolidate, dishing out hefty penalties to countries who are already struggling will do little to convince the market that the current view of monetary union has much of a future. The Euro, especially against the US Dollar (EUR/USD), could be squeezed.

No-deal Brexit risk Pushes Pound to 2019 Lows vs US Dollar (GBP/USD)

Sterling is languishing near its 2019 lows against the US Dollar (GBP/USD) amid fears that a no-deal Brexit could still be seen. Measures of just how volatile the market expects the Pound to become in the next few months have also risen to levels not seen since 2016. Although there may be some concern that too much credence is being given to the possibility of a no-deal, exaggerated movements in the value of the currency are seen as almost inevitable while a new Conservative Party leader is found and the clock ticks down towards the new EU departure deadline of October 31st.

GBP/USD, EUR/USD, and GBP/EUR Exchange Rate Movements

The Pound spent the overnight session trading essentially sideways against the US Dollar. The mid-month sell-off has, however, pushed GBP/USD down to levels where there’s little demand to move any lower.

Weak Eurozone economic data yesterday morning heaped fresh pressure onto Euro US Dollar trades and the sell-off that started in the wake of last weekend’s elections remains underway. There is real political risk over where the European Union goes next and this uncertainty will do little to help the common currency.

The Pound continues to post very modest gains off the four-month lows posted at the end of last week. With questions lingering over the political outlook in both London and Brussels, plus the fact both currencies are at risk from a global trade slowdown, identifying which one breaks out first remains challenging.

Why did it move? – USD/CAD

The Canadian Dollar gained ground yesterday after the Bank of Canada (BoC) elected to hold its interest rate steady at 1.75%. Markets had been expecting a more dovish tone from the BoC but policymakers saw the recent slowdown as being a passing phase and played down any need for a rate cut. USD/CAD has now fallen from yesterday’s session highs around 1.3550 to 1.3500 this morning.

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