The U.S. Dollar Index, which measures the strength of the USD against a basket of other currencies, has been in a persistent slump since the start of 2017 and has just reached a new low for the year. Weakness in the USD is generalized and could possibly be due to a lack of concrete reforms from the Trump administration. This political risk with the greenback is starting to make other central banks nervous as they see their own currencies rise. European Central Bank President Mario Draghi expressed this feeling very directly in his introductory statement for yesterday morning’s ECB meeting: “The recent volatility in the exchange rate represents a source of uncertainty which requires monitoring with regard to its possible implications for the medium-term outlook for price stability.” In concrete terms, the current strength of the euro (USD weakness) could prevent inflation from rising toward its target. Markets seem relatively unconvinced, however, and the euro has remained strong.
The USD’s weakness also continues against the CAD, which could strengthen further toward 1.2000 if Canadian job data prove positive when released at 8:30 this morning. In contrast, a disappointing reading could result in a slight dip toward 1.2200.
Olivier Cosialls