Global Themes

A broadly flat U.S. currency Friday was on track for a weekly loss. America’s buck lost traction this week after the Federal Reserve left interest rates unchanged, and forecast a shallower slope of rate hikes in the years ahead. The yen, on the other hand, emerged victorious in the wake of the Bank of Japan and Fed announcements, as the Asian central bank largely left its policies unchanged which haven’t proven burdensome on the Japanese currency. Though little changed Friday, the dollar jumped nearly a percent against the U.K. pound as Brexit uncertainty returned to the fore. The euro was on course for a weekly win, one that was wasn’t assured after tepid growth data Friday across the region. Market gaze today will be on Canada whose economy releases big data on inflation and consumer spending. The loonie was steady ahead of the 8:30 a.m. ET dose of data.


The euro toted a modest gain against the dollar into Friday’s session, one that wasn’t assured to remain intact come the weekend after purchasing managers’ data showed that growth across the 19-nation bloc moderated more than expected to 52.6 in September, the slowest in 20 months. The data was supportive of the ECB’s low to lower rate outlook, one that contrasts a strengthening case for the Fed to lift its borrowing rates this year.


GBPUSD shifted into reverse as Brexit risk returned to the fore, a wavering source of negativity for the pound. Boris Johnson, Britain’s foreign secretary, hinted that Britain could be on a somewhat faster track to exiting the European Union. The market sees a negative for the pound if Britain has a shorter timeframe to negotiate a favorable divorce deal with its EU counterparts. Still, meaningful moves to the downside for GBPUSD could be held in check after a Bank of England official, Kristen Forbes, played down prospects of further rate cuts given the economy’s nascent resilience in the wake of Brexit.


A steady dollar was on track for a weekly loss as the Fed’s shallower slope for rate hikes in the years ahead has proven slippery for the U.S. currency. The Fed this week said no to a September rate hike, maybe to December, and telegraphed fewer rate rises in 2017 and 2018. The Fed’s less hawkish outlook reduced a leading source of strength for the dollar, diluting some of its bullishness. Still, downside for the dollar could be slowed by the view that the Fed is well ahead of its rivals in raising rates. Political risk could soon enter the fray for the dollar with presidential candidates holding their first debate on Monday, Sept. 26.


The loonie was robbed of a two-week high after fresh readings on Canada’s economy continued a worrisome trend of weakness. Gauges of overall and underlying annual inflation moderated in August, while retail sales unexpectedly shifted into reverse, falling 0.1 percent in July. Weak data keep alive the view that the next move in Canadian lending rates could be down rather than up. The specter of lower rates tends to dull a currency’s sheen.

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