European Political Tensions Helping Keep DXY Index Afloat

The US Dollar (via the DXY Index) has managed to push slightly higher on Wednesday ahead of key no-confidence votes in Greece and the UK. The US government shutdown appears to be a positive for the greenback, as the lack of economic data being released means that traders don’t have any new, negative news to price-in (and thereby price-out rate hikes by the Federal Reserve in 2019).

Key releases canceled this week include the November US Advance Trade Balance and December US Retail Sales. But it only may be a matter of time before the shutdown starts to show up in the real economy; the White House itself admitted that the economy is losing -0.1% of growth every week as opposed to every two weeks. The economic analysis suggests that the longer the shutdown goes on, the more it compounds; the drag on the economy will accelerate as time passes. It’s possible that Q1’19 US GDP is close to 0% if the shutdown drags on for a few more weeks.

PATH FORWARD FOR MAY, UK UNCLEAR

We’ve seemingly reached another seminal moment in the Brexit process. After a historical defeat in parliament, UK Prime Minister Theresa May is now facing down a no-confidence vote from Labour party leader Jeremy Corbyn. But with reports afoot that the Tory party will stay unified and the Northern Ireland DUP – Tory’s coalition partner in the majority – will back May suggests that the Labour-led no-confidence vote will falter. Even if some backbench members call for otherwise, that Labour party leader Corbyn is still pro-Brexit means getting to a second referendum is still a distant outcome.

It almost seems destined that Brexit-watchers will declare that by surviving the no-confidence vote, May’s hand has been strengthened as she departs for Brussels later this week. Let’s not kid ourselves, however: May will have little influence over the EU’s Brexit negotiator Michel Barnier. The calculus for the EU and its member countries haven’t changed, and by no means are they obliged to make Brexit any easier for the UK. The path forward for May and the UK remains unclear, but an extension to the March 2019 deadline seems very possible to avoid the cliff-edge, no-deal “hard Brexit.”

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