Global Themes

The U.S. dollar steadied above seven-week lows against euro and its weakest in four months against the yen ahead of today’s crucial vote in Washington on healthcare reform. The vote is considered a harbinger for President Trump’s ambitious agenda to strengthen U.S. economic prosperity. The president’s pro-growth platform was the driving force that propelled the greenback to 14-year highs in the wake of the election. Successful passage of the deal, dubbed the American Health Care Act, would bode favorably for the president’s ability to implement other agenda items like tax cuts, a scenario that would be positive for the dollar. Failure to pass, on the other hand, could hasten another wave of dollar selling as it would augur ominously for the president advancing his agenda. A data-lift boosted sterling to one-month peaks. The Fed chair and U.S. numbers on the jobs and housing markets are also in focus today.


Sterling rode a consumer-driven rally to one-month highs against the underperforming greenback. U.K. consumers came out of a three-month hibernation with a stronger than expected spending spree in February when retail sales jumped 1.4 percent. The data came on the heels of a report showing the highest U.K. inflation in 3 ½ years and bolstered the case for the Bank of England to consider a rate hike from crisis lows near zero. Nevertheless, doubts remain about the sustainability of consumer spending given the headwinds of rising inflation and tepid wage growth.


The euro steadied after unsuccessful attempts this week at climbing to fresh 2017 highs. How today’s vote in Washington goes on the opening salvo of the president’s agenda could potentially catapult the single currency to new peaks, should Republicans fall short of the votes needed to repeal and replace Obamacare. While the euro has struggled to break through a key ceiling, it’s enjoying an improved track record of sustaining gains thanks to signs of a broadening economic recovery which has some central bankers pining for a policy U-turn.


The loonie was on mostly level ground against its U.S. counterpart, buoyed by oil’s nascent stabilization. Oil markets kept above $48 a barrel, offering a modicum of support to some commodity-linked currencies. A critical catalyst lurks for the loonie Friday when Canada releases fresh figures on inflation, data that can shed light on the road ahead for monetary policy. 


The Aussie dollar ducked under four-month highs, tracking data from top trade partner China and iron ore prices lower. The Aussie slipped to its lowest in more than a week, moving some 1.5 percent below November peaks reached days ago. A reduction in risk tolerance ahead of a big healthcare vote in Washington also worked against the higher-yielding Aussie, shifting the so-called carry trade into reverse.


The dollar kept mostly steady despite news of an unexpected spike in weekly jobless claims which rose by 15,000 to 258,000. That’s still a healthy level that points to ongoing strength in the labor market, keeping the Fed on course to raise rates in the months ahead. Attention on Washington helped to divert investor attention away from the economy, limiting the data’s impact on the dollar. The dollar this week has been held hostage to political developments. The U.S. currency would be at risk of accelerated losses should the president whiff on his first major agenda item, healthcare reform, which would bode poorly for his chances of advancing his broader agenda aimed at giving the economy a meaningful lift.

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