Global Themes

The U.S. dollar was mostly steady Thursday with forex markets keeping on a jumpy footing ahead of America’s change at commander in chief on Friday. The dollar has shown tentative signs of stabilization after slipping this week to its weakest in more than a month after remarks from America’s next president dubbed it ‘too strong’ and ‘killing us.’ The dollar found some footing Wednesday after comments from Federal Reserve Chair Janet Yellen made the case for a ‘few’ interest rate hikes this year. Still, the market continues to treat the dollar like a hot potato ahead of tomorrow’s inaugural address from America’s next president. Will the future president use the occasion to talk down the dollar or will he elaborate on how he plans to goose the economy? The answers to those questions will be key to shaping the dollar’s coming prospects. Canada’s loonie hit a two-week low, weakened by the Bank of Canada’s rate cut readiness. Today brings an ECB policy decision and data on America’s jobs and housing markets.

AUD

Already off to a hot start to 2017, the Aussie dollar added to its outperforming ways Thursday with a climb to two-month highs, boosted by better than expected local data that suggested a slimmer chance of Australia’s central bank cutting interest rates this year. Australia added a better than expected 13,500 jobs in December. The jobless rate rose to a six-month high of 5.8 percent but for good reason: the workforce grew. How durable is the Aussie’s rally? Chinese Q4 growth data Friday should help to shed some light. The Aussie would be vulnerable if growth in its top trade partner should moderate in a material way.

USD

The U.S. economy let loose a dollar-supportive batch of data on jobs, housing and mid-Atlantic manufacturing. Weekly jobless claims unexpectedly improved, printing at 234,000 – a near four-decade low and another sign of strength in the labor market. The dollar has settled into a range with gains capped by concerns that a new administration in Washington might not favor a strong dollar which would mark a U-turn on currency policy going back decades. On the other hand, meaningful moves to the downside in the dollar have mostly been checked by expectations the Fed may have to raise rates more often this year with job growth and inflation trending in the right direction. America’s next president is scheduled to deliver his much-anticipated inaugural address around noon ET on Friday, a time when market volatility could intensify.

GBP

Sterling continued its waxing and waning ways, with the U.K. currency firmer Thursday. The pound rallied by a massive 3 percent on Tuesday after British Prime Minister Theresa May said that Parliament would get a vote on the government’s Brexit strategy which helped to assuage for now worries that the Brexit process could materially weaken the economy. While Brexit uncertainty should limit gains in the U.K. currency, moves to the downside have also proven limited thanks to reassuring economic news this week showing the highest inflation (1.6 percent) in 2 ½ years and unemployment (4.8 percent) holding at decade-plus lows, figures that argue against further central bank stimulus.

CAD

Goodbye three-month highs, hello multiweek lows. Canada’s loonie hit a two-week trough against the U.S. dollar Thursday, a day after the Bank of Canada surprised with a dovish turn when it announced its first interest rate decision of the year. The bank left its base borrowing rate unchanged at 0.50 percent but said that a ‘rate cut remains on the table’ should downside risks to growth from the stronger loonie and potential changes in trade agreements with the U.S. materialize. The dovish remarks seemed aimed at reversing some of the loonie’s recent gains, or least slowing its ascent, which risk undercutting nascent signs of strength in the country’s economy-driving export sector. Odds of a local rate cut are sure to be impacted by Canadian data Friday on inflation and retail sales.

EUR

The euro was mostly steady Thursday after the ECB as expected left is low rate policies unchanged and reiterated that risks to the 19-nation economy continued to point toward weakness. The tone of Mr. Draghi’s remarks sounded a dovish note and a readiness to deliver more stimulus with inflation running well below the bank’s near 2 percent goal. The central bank chief seemed to play down recent signs of improvement in the economy while its easing bias stands in stark contrast to the Fed’s higher rate bias, boding bearishly for the euro’s fundamental outlook.

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