Dollar soars, pressure on EM currencies increases

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3 July 2018

thomasdodds

The US Dollar soared during London trading, with support from the Euro weakness and ongoing flight from risky assets that saw some emerging market currencies, such as the Polish Zloty and Chinese Yuan getting hammered.

B
usiness activity numbers from the US were impressive. ISM Manufacturing Index rose to 60.2 in June from 58.7 last month, and was significantly higher than expected. Manufacturing PMI surprised to the upside as well.

Merkel and Seehofer agree on migration, Euro steadies

For the past couple of days, the common currency suffered due to investor worries about the potential breakup of a historic center-right alliance, currently ruling the state. Inability to agree on migration policy lead to a stand-off between CDU/CSU and its respective leaders, Chancellor Angela Merkel and Horst Seehofer. On Monday, the pressure on the Euro increased when Seehofer announced his plan to quit as interior minister and leader of the party. The currency, however, rebounded near the end of the day, when it was announced that both parties finally managed to agree and Seehofer decided to remain in his position. This serves as a relief for the Euro and CEE currencies heavily pressured by current risk aversion.

Pound follows the common currency

Due to the absence of any major news regarding future decisions of the Bank of England and no information regarding progress over Brexit negotiations, Sterling mostly followed Euro’s reactions ending the day lower against the US Dollar. Yesterday’s figures showed that the UK managed to maintain a relatively high level of expansion in the manufacturing sector, however, it didn’t affect the Pound too much.

Macroeconomic news today should be of limited importance. Investors will look for retail sales data from the Euro-area and the Riksbank announcement, as well as, construction PMI release from the UK. Later in the day, durable orders data from the US will be published.