June 16, 2017 by Stephen Casey
The big dollar is sliding lower after the University of Michigan’s consumer sentiment for the US fell to 94.5 in June, down from 97.1 the previous month. This is the biggest drop for consumer confidence since October of 2016.
The details, unfortunately, don’t paint a better picture, as the expectations measure fell to 84.7 – also the lowest since October – while current conditions dropped to 109.6 from 111.7 in May.
There is no doubt that Americans are now very concerned about the prospects of President Trump’s economic policies passing through Congress.
Although last week’s testimonies by former FBI Director James Comey and other various intelligence leaders seemingly vindicated President Trump on the on-going Russia negotiations, revelations this week showed the investigation has no signs of slowing down. It wasn’t all bad though, as 42% of respondents in the survey expect to see financial gains in the next twelve months, the highest result since 2005.
Before this morning’s slight dip, the big dollar has experienced a resurgence, exploding higher after Wednesday’s Fed meeting. Although the 25-basis-point hike was priced into the market, the more hawkish Fed stance certainly caught the market off-guard. In addition to boosting growth projections for 2018 and 2019, Fed Chair Janet Yellen stated the committee would finally begin tackling the issue of “quantitative tightening.”
Starting this year, the Fed will begin to reduce the size of their $4.5 trillion balance sheet by shedding its holdings of Treasuries and agency securities. This initiative is another important step in the normalization process, which should benefit the US dollar.
Bottom Line: The lines between economics and politics continue to blur – as evidenced by this morning’s release. Although the fundamental prospects for the dollar continue to point higher, political uncertainty remains a weight on American consumers.
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About the Author:
Stephen specializes in creating customized hedging strategies to mitigate FX risk for corporate clients across North America and Europe. He is a regular contributor to Cambridge’s Daily Market Analysis and is often quoted by financial news outlets, including Bloomberg News.