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By xemarketanalysis January 22, 2018 1:50 pm
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    XE Market Analysis: US Dollar Soft as Government Shutdown Continues


    • US Dollar weak amid Washington divisions.
    • IMF revises up global growth forecasts for 2018 and 2019.
    • Canadian wholesale trade rises for a second straight month.
    • Investors appear unfazed by US politics with equity markets up slightly. 


    The International Monetary Fund (IMF) announced its global growth forecasts for 2018 and 2019 that have been revised upward by 0.2% to 3.9%. The revision reflects increased global growth momentum and the expected impact of the recently approved U.S. tax policy changes. The changes are expected to stimulate activity with the short-term impact in the United States mostly driven by the investment response to the corporate income tax cuts. It also revised up its growth for the Euro area, "reflecting the stronger momentum in domestic demand and higher external demand."  


    The Dollar is drifting lower as we enter the third day of the US government shutdown. Despite the Republican Senate leader extending the Democrats olive branch on Sunday, there is still pledging to bring immigration legislation up for debate after February 8th on the condition that the government remains open. As well as monitoring efforts to agree on government funding, we have fourth quarter US GDP growth data on Friday. The Dollar weakness trend remains firmly intact.


    The Pound is rising back towards its post-Brexit highs, with the lack of Brexit news appearing to be a positive for the currency as domestic data continues to point to underwhelming economic growth. This week we have employment data, with earnings in focus as well as fourth-quarter GDP growth that is forecast to be soft at 0.4% from Q3.   


    The Euro is weak, down against all G10 counterparts except for the weaker US Dollar. Martin Schultz's SPD party voted in favor of entering new Grand Coalition negotiations with Merkel's CDU party, potentially allowing a government to be formed by late March. The ECB meet this week and are expected to keep monetary policy on hold, but we could see some volatility in the single currency as the market is looking for them to signal that they will end their QE program due to rising economic activity. 


    The Canadian Dollar has recovered the ground it lost versus its US counterpart on Friday in a broad environment of Dollar weakness. Wholesale trade rose 0.7% in November, slightly below expectations but continuing to point to the wider expansion. This week's key highlights will be on retail sales and inflation, as well as the sixth and penultimate round of talks on renegotiating NAFTA.


    The Australian Dollar is higher on the day and above the 80 cents level, but below its 4-month high of 0.8023 reached last week. With no domestic data scheduled for release this week, the Aussie will likely be driven by external factors. The failure so far to close a session above the 80 cents level could signal an interim peak for the Aussie. 


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