Dollar fell after GDP, Euro rise as market jitters over the French elections eased, Sterling and Brexit negotiations.
Posted on Monday, May 1 2017 at 4:24 pm GMT+0000The dollar fell after GDP.
The dollar ended the week lower due to several factors, the most important of which was increased tensions between the US and North Korea, as well as the decrease in growth. We saw the biggest slowdown in growth in three years.
The GDP rose at a slower pace in the first quarter by 0.7%, versus expectations for 1% and a previous reading of 2.1%. The decline is due to a drop in consumer spending, which is the most important constituent of the economy, recording a growth of 0.3%, the worst since 2009.
Although the growth rate used to be around 1% in the first quarter of each year since 2000 and rising to 2.2% for the remainder of the year, these readings may warn for a possible decrease in the US economy, certainly if it remains low for the next quarter. Household spending in the United States is negatively affected by rising inflation since wages remaining unchanged, what reduces purchasing power.
I do not expect the FOMC to introduce any changes for monetary policy during this week’s meeting, or even in the adopted tone. I think there will be more important data that should be followed to get some hints about what would happen during June meeting. The most important of which are the jobs data scheduled on Friday, and the wage rates should be eyed also, not just on the number of new jobs created.
Euro rise as market jitters over the French elections eased
The euro became the preferred currency among investors after the results of the first round of the French elections.
The Euro broke through the 1.0900 barrier, reaching 1.0950, where it posted a new five-month high, as market jitters over the French elections eased.
We can see the dollar reaching overbought levels, and the purchasing power that could push it to record new highs, decreasing. European economic conditions are also improving markedly in terms of inflation, unemployment, etc., the negative political pressure on the euro has been reduced, as Macron expected to win the elections.
Has the election ended yet? Of course not. But if there is no terrorist act, or a new scandal that will reverse expectations and reverse the electoral equation, the euro zone will move towards political and economic improvement from now until June, when negotiations with the UK begin. Political pressure could start over at the beginning of next year with the Italian elections. So we may see some short-term improvements.
Sterling and Brexit negotiations.
Sterling opened the week lower after rallying for three consecutive weeks, reaching an eight-month high of 1.2965.
The European Union will not make facilitate the Brexit. It is likely to make from UK a lesson for any other party that might plan to separate in the future.
As we seen before, 27 countries contended that the EU will lead the negotiations and therefore will direct the conditions. They won’t allow UK to get any better when exiting the Union.
The EU will specify the Brexit conditions and costs, before moving on to discussing future relations and trade agreements. The Prime Minister of Luxembourg said that the UK will not be distinguished from other countries from outside the Union, and therefore will not get any facilities or services.
The EU’s priorities are to protect the rights of the three million European citizens living within the Kingdom, to reach an agreement on the Kingdom’s financial dues to the Union, which is expected to reach about 40 billion euros, and to agree on border policy.
After agreeing on these points, we will move on to discuss the external relations.
On the other hand, May is hoping to get a majority in the snap elections, and get supported by the British majority in an attempt to facilitate the negotiations process and be able to postpone the issue of financial dues until reaching a new trade agreement.
Negotiations will certainly not be easy and will have negative effects on both sides.
