The US dollar index touched new highs for the year during the overnight trading session - dancing around 97.20 (the highest level in 2018 was around 97.71). The headline that top US lawmakers would meet Monday afternoon to avert a government shutdown only helped to accentuate the move in the dollar. The British Pound, one of the main currencies that form part of the US dollar index basket, was weaker yesterday. An anemic Q4 GDP print was a reminder that economies can’t escape the weight of uncertainty, whether it be Brexit, trade tensions, or China growth. The UK GDP printed at 0.2 percent quarter to quarter versus the 0.3 percent expected, but this masks the severity of UK growth weakness, which is at its lowest annual rate in 6 years. The Euro fell in sympathy with the British Pound, and even the Japanese Yen slipped into negative territory for the year. Short US dollar positions have unwound, encouraging a strong buying pressure of US dollars, and making the US dollar soar to new highs.
This morning however, optimism about the US-China trade discussions bolstered risk assets. The US dollar index is falling around 0.15 percent, and currencies such as the Aussie, Kiwi and Canadian dollar are getting a boost as business confidence improves. Likewise, emerging market currencies, such as the South African Rand, Mexican Peso and Chinese Yuan are getting more expensive against the US dollar this morning. Finally, the North American session seems more optimistic with equity futures rising as a result of trade talk outcomes.
The US inflation figures due tomorrow will likely show that wages continue to stagnate, and inflation continues to remain in the 1.5 –2.5 percent range.