Global Themes

The U.S. dollar returned to its back foot a day after taking Thursday’s session. The dollar index softened toward one-year lows, while the euro moved to within striking distance of 2 ½ year highs. The U.K. and Canadian currencies were little changed. The buck caught a reprieve Thursday after good news on the U.S. economy offered support. Durable goods soared by the most in nearly three years. But the dollar had trouble sustaining the gain after Washington overnight failed to pass a ‘skinny’ measure to repeal health care legislation, keeping the president’s economy-friendly agenda out of sight. Stronger than expected German inflation buoyed the euro, and boded well for euro zone inflation on Monday. The dollar will look for direction today from data on U.S. growth during the spring quarter. Numbers that depicted America’s economic glass as half full could help breathe some life into the dollar.

EUR

The euro received a data-inspired lift on Friday as German inflation and euro zone economic sentiment both fared better than expected. Europe’s parade of positive data reinforced expectations that the ECB could soon announce plans to roll back stimulus that, while positive for the region’s economy, has weighed on the euro by anchoring interest rates. Europe will release big numbers next week: Inflation and unemployment on Monday, and second quarter growth on Tuesday.

CHF

Calling all CHF buyers! The franc continued its sharp decline, on pace for its worst month against the euro in 6 years, while it sank to one-month lows against the U.S. dollar. The franc has been increasingly dogged this week by Switzerland’s pursuit of negative interest rates which contrast higher yields abroad. Meanwhile, better performing global stocks, which admittedly are lower today, have enticed investors out of safer plays, like the franc, and into higher yielding waters abroad.

CAD

Canada’s dollar rallied nearly a percent Friday, moving toward a two-year high, after good news on the northern economy strengthened conviction in another local rate hike this year. Canada’s economy grew 0.6% in May, easily quashing forecasts of a steady 0.2% print. The loonie had its advanced slowed somewhat by oil prices which idled at $49.

USD

The U.S. dollar added to its heavier tone Friday after mixed news on the world’s biggest economy. America’s economy grew at a faster pace of 2.6% annually during the second quarter which matched forecasts. Consumers did their part with spending up 2.8% after an upwardly revised 1.9% during the first quarter. A sub index on inflation slowed, however. Bad news on inflation has served as a popular sell signal for the U.S. currency as it won’t take the Fed’s vigilant eye off a glaring weak spot of the economy. Moreover, weak inflation suggests the Fed may be done raising interest rates for the year. Big U.S. data loom next week that could shape dollar sentiment for weeks to come. Tuesday is packed with data on the consumer, inflation and manufacturing. Friday brings the month’s most important report: Nonfarm payrolls.

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