The US Dollar continued its good run in early Asian trading this morning despite a lack of positive data releases from the world’s largest economy.
In fact, at the end of last week, investors were faced with the news that personal spending in the US slowed for the first time in more than two years in December, whilst personal income also registered a decline, this time in January’s figures.
The US economy is nearly 70 percent consumer spending driven. Customer spending is the fuel that powers the US economy. So, when consumer spending falls and falls by such a large amount alarm bells should be ringing.
The US Commerce Department reported on Friday that consumer spending, fell 0.5 percent in December, its first drop since September 2016. This after analysts had predicted a slightly less alarming 0.2 percent decline.
Following a 1 percent increase in December, the core personal consumption expenditures (PCE) fell 0.1 percent in January, compounding fears that the US economy is experiencing a slowdown. A slowdown which is hitting right at the heart of the US economy. So, why is the US Dollar rising and holding near a two-week high against its key rivals.
Trade Deal Optimism
Gains in the US Dollar stem from one main area at the moment. – Trade deals. President Donald Trump has been embroiled in trade deal discussions with just about everyone.
However, the trade tariff war with China, the world’s second largest economy is the most important. After months of threats, discussions, and talks, the two economic powerhouses look closer to a deal.
A media report released on Sunday stated that the US and China may conclude a formal agreement at a summit at the end of this month. U.S. government economic adviser Larry Kudlow already commentated at the weekend that there was a good deal of progress already made in the US talks with Chinese representatives.
Euro Woes in Focus
Another reason for the gains in greenback can be attributed to investor anxiety over Europe and the Euro. Investors are showing caution in the single currency ahead of the key ECB meeting on Thursday.
The European Central Bank is facing mounting pressure to show it is addressing the need to protect the eurozone economy from an elongated slowdown.
Shin Kadota, senior strategist at Barclays said:
“The ECB meeting is unlikely to provide big surprises, but the euro is getting top heavy as the central bank, after all, is expected to strike a dovish tone”
With that in mind and a lack of market moving economic data releases in the economic calendar, we can expect the good run in the US Dollar to continue, at least until Thursday.
