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American Dollar Strengthens Upon Brexit and Emerging Markets Issues

Published on: 10/31/18 12:27 PM

Tags: , , ,

Category: Currency, Forex, Market, Trade, World News

Euro/GBP


The Euro/GBP sterling are showing signs of strain in the midst of the Brexit negotiations between the United Kingdom and the European Union, and this situation has been boosting the value of the United States dollar in recent weeks. Likewise, economic woes in key emerging market such as Argentina, Brazil and Turkey are also pushing the dollar higher, and this is part of a trend that currency analysts believe could continue through the end of the year.

According to a Reuters news report published on October 15, the British pound and the euro respectively lost 0.34 and 0.1 percent a few hours into the forex trading session that started on Sunday evening in New York. Trading volume was mostly flat until news reports started coming in ahead of a meeting between UK and EU officials engaged in negotiating the future of the border between Northern Ireland and the Republic of Ireland.

Both British and European officials are disappointed at the current impasse of Brexit negotiations, and their respective currencies reflect this sentiment. As for the U.S. dollar, the ongoing American and Chinese trade war does not seem to be affecting its value, much to the chagrin of United States President Donald Trump and his desire for a lower dollar.

Strong demand for the USD


Strong demand for the USD is being felt around the world, particularly in countries such as Argentina and Turkey, where local currencies have lost significant value in the wake of pessimistic macroeconomic indicators and political instability. Trading of the greenback in the black market of Venezuela is becoming more active even as the government limits the flow of dollars; in middle income Latin American nations such as Costa Rica and Uruguay, budget deficits are prompting consumers to load up on USD as their own currencies weaken.

In Japan, forex traders are split on whether to go long or short on JPY/USD positions. As the situation stands, the Japanese economy is improving at a moderate pace and the yen is regaining strength gradually, but financial regulators in the U.S. are thinking about enacting measures to curtail currency manipulation in future trade deals. As a major trading partner with the U.S., Japan could be affected by such measures, which would directly impact the yen.

The Canadian dollar and Mexican peso have not shown much movement since NAFTA was replaced with the new UMSCA trade deal a weeks ago. Traders who went long on the peso and the loonie have already taken their profits and may not be going long for a while. In the end, the greenback will likely continue gaining strength from now until December even if China keep lowering the amount of American imports Asian consumers are known to crave.