Dollar Gains Due to Holiday while Pound Slides Amidst Brexit Woes

On Monday, in early European trade, the dollar was trading higher whereas disappointing German industrial production data caused the euro to weaken. The increasing risk of a messy end to the Brexit transition period that’s looming at the end of the year weighed down the Pound. There was a 0.3% increase in the Dollar Index at 3 AM ET (0700 GMT), which tracks the greenback against six other currencies. It was being traded at 92.957, as the trade was thinning, mostly likely because of the U.S. Labor Day holiday. On Friday, the data that was released from the U.S. Labor Department showed that the jobless rate in August fell from 10.2% to 8.4%.

This decrease in the unemployment rate was seen despite increasing doubts of the sustainability of the economic recovery of the U.S. and the drying up of government funds. According to trading experts, the dollar was being supported by the jobs data that showed a decline in the unemployment rate and an increase in U.S. Treasury yields. As far as EUR/USD is concerned, it experienced a decline of 0.1% and was trading at a value of 1.1829, primarily due to the disappointing industrial output in Germany seen in July. Even though it did grow by 1.2% for the third month in a row, it is still growing at a slower pace than the forecasts of economists.

The uncertain outlook in the region is probably going to feature quite prominently in discussions this week when officials of the European Central Bank meeting. It has been predicted by most economists that the Governing Council will not make any changes to the policy on Thursday, although they do expect that before the end of the year, there will be an increase in an asset purchase. Some analysts said that three important issues were going to be the highlight in next week’s meeting.

The first issue will be the fresh set of projections by the European Central Bank. The second would also be related as it will be about the ECB’s reaction to the recent increase in the value of the euro. Lastly, after the Fed’s announcement last week, ECB will probably do its own strategy review as well. They said that since the value of the EUR/USD pair had hit 1.20 in the previous week, the interesting part of the press conference and meeting would be Lagarde’s response to the euro exchange rate.

The most important question to ask next week would be if the strengthening euro has opened the doors for additional monetary stimulus in the next couple of months. Elsewhere, there was a 0.6% decline in GBP/USD as it fell to 1.3201 because the trade negotiations between the European Union and Britain may once again turn hostile. On Monday, it was reported that new legislation is being planned by the UK government for overriding some key elements of the Brexit Withdrawal Agreement. This would make it very difficult to clinch a new trade deal before the end of the transition agreement in December.