Global Themes

Anti-U.S. dollar sentiment was on the rise Tuesday as the greenback slouched broadly and hit five-month lows against the yen. The dollar slipped 0.5% and 1% against the euro and yen but was little changed against its Canadian counterpart. The dollar’s retreat follows its best week in 15 months when it rallied to multiweek peaks. Global stocks have shown signs of stabilizing after a recent slump. Yet the tentative sense of calm doesn’t explain the safer yen’s outperformance. President Trump’s budget proposal to run bigger deficits over the coming fiscal year isn’t helping the dollar. Sterling outperformed after stubbornly high U.K. inflation bolstered the case for the Bank of England to raise borrowing rates as soon as the spring. With nothing major on the U.S. calendar, currencies should continue to take their cues from Wall Street. The week’s main event, U.S. inflation, looms Wednesday.

CAD

Canada’s dollar failed to capitalize on the weaker greenback as stocks and oil flashed red. The loonie has moved above six-week lows but remains on a fragile footing after disappointing area jobs data last week didn’t help the case for the Bank of Canada to raise interest rates from 1.25% any time soon. For better or worse, stocks and oil hold the keys to the loonie given the absence of major items on the nation’s economic calendar this week. Big numbers loom next week with reports on retail sales and inflation. 

GBP

Sterling jumped above three-week lows after U.K. inflation proved stubbornly high, strengthening a growing case for the Bank of England to raise interest rates. British inflation held at 3% in January, close to six-year highs, compared to forecasts to soften to 2.9%. The pound has seesawed in recent weeks as hawkish hopes for borrowing rates competes with an ever-uncertain backdrop for Brexit.

EUR

The euro strengthened against its weaker U.S. rival, rebounding from three-week lows touched last week. The euro’s bullish bias leaves it prone to buying on the dips. A still-precarious backdrop for global stocks has clouded the euro’s short run prospects. But looming Wednesday is data on German inflation and euro zone growth during the fourth quarter. More evidence of Europe’s economy firing on more cylinders could see the euro take renewed aim at recent peaks, a narrative that would strengthen the case for the ECB to pare back stimulus this year.

JPY

The yen soared to fresh peaks against the greenback, reaching its highest in five months. The yen benefited as a haven as Japanese stocks ended the day in the red. The yen has strengthened more than 4% this year on the view that Japan’s economy, the world’s 3rd biggest, may reach a healthy enough footing to allow the Bank of Japan to reduce stimulus. Expectations are on the rise that Japan’s central bank governor, Mr. Kuroda, could win a second term after his first one expires in April.

ZAR

South Africa’s rand tumbled nearly a percent as the nation’s leadership crisis weighed. The African National Congress, or ANC, has decided to “recall” or remove President Jacob Zuma over a series of scandals. While the rand could benefit and strengthen on a political-uncertainty-reducing leadership change, uncertainty over when, or if, Mr. Zuma cedes power is weighing on the South African currency. USDZAR could experience sudden and surprising volatility as the political crisis plays out.

USD

The dollar fell into a deeper hole on the week after its best weekly run in 15 months invited a round of profit-taking. Underlying dollar sentiment remains bearish as economic optimism abroad dominates the spotlight. The dollar’s wavering bias looks to U.S. data Wednesday on consumer prices and retail sales. Forecasts call for moderation on both fronts. Any surprise increase in inflation could catalyze another stock market selloff to the benefit of haven currencies like the dollar and yen.

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