Global Themes

The U.S. dollar’s Fed-fueled gains were running on fumes Friday, with the greenback down versus most peers. Global markets started autumn with a fall as North Korean jitters resurfaced and S&P slashed China’s sovereign credit rating by a notch. The dollar index eased below the two-week peak it reached after the Fed this week kept the door wide open to a rate hike by year-end, a notion may had dismissed given low inflation and a hazier outlook for growth in the aftermath of two devastating hurricanes. Today’s price action underscores how the Fed, while hawkish, didn’t hit the reset button for the weaker greenback. While the Fed expects to tighten policy at a slow but steady pace, other central banks are seen on its heels which has caused dollar rallies to get low fuel economy. Canada’s dollar was firm ahead of central bank-impacting data today on inflation and consumer spending.

USD

The dollar waxed and waned Friday and nearly surrendered its Fed-fueled gains when it climbed to two-week peaks on a trade-weighted basis and two-month highs against the yen. The Fed erased a layer of uncertainty and negatively for the buck in voicing confidence in the economy and expecting to deliver a third rate rise this year. The Fed’s hawkish steer should limit weakness in the U.S. currency. Still, other sources of dollar negativity remain such as expectations for central banks in Europe and Canada to follow the Fed in tightening policy and how geopolitical unrest continues to fuel demand for rival havens like the yen and Swiss franc.

GBP

Sterling was steady ahead of a big speech today by British Prime Minister Theresa May. Mrs. May will flesh out her plans for exiting the EU and attempt to unite her divided Cabinet. A tone that advocates a hard Brexit or clean break from the bloc would tend to subject the U.K. economy to the most downside risk, a scenario that could weigh on the pound. Any tone that stops short of a hard Brexit would tend to prove pound-positive.

CAD

Canada’s dollar trimmed gains after mixed data stopped short of cementing a third rate hike this year. Inflation underwhelmed with a 1.4% annual rise in August, compared to forecasts of a 1.5% increase. Retail sales impressed with a 0.4% increase in July, which easily cleared the 0.1% forecast. Though down on the day, USDCAD is on track to finish the week with a gain thanks to the Fed’s hawkish steer that kept another rate hike this year in play.

EUR

The euro nearly erased its Fed-inspired decline as data suggested the bloc’s economy continued to thrive in the face of a stronger euro. Preliminary surveys of euro zone manufacturing and services growth topped expectations, which dialed up pressure on the ECB to rein in stimulus from next year. Meanwhile, Germany’s federal election on Sunday has largely flown under the radar, a sign that polls expect Angela Merkel to win a fourth term as chancellor, a scenario that would keep political uncertainty mostly in check. 

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