Currency Market Analysis

Jul 02, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar was steady near multiweek highs ahead of today’s always important look at the health of the American job market. The dollar has fared solidly this week, garnering safe haven flows from worries about Greece’s debt crisis while upbeat news on the American economy has also buoyed sentiment. Another month of healthy hiring is expected for June, with forecasts expecting a gain of around 230,000 jobs. Unemployment is expected to tick down to 5.4 percent while paychecks are expected to receive a modest bump. The jobs figures will offer some clarity in a complicated outlook for U.S. interest rates. A strong showing by the labor market last month would strengthen the case for the Federal Reserve to raise rates before the end of the current July to September quarter. Holiday-thinned markets, when liquidity tends to be at its lightest, could result in an outsized reaction to today’s jobs report, setting the stage for a potentially volatile session. The euro kept on a vulnerable footing ahead of a Sunday vote in Greece over whether the nation should embrace harsher austerity in exchange for more life sustaining loans.


The krona tumbled, nearing its weakest in a month, after Sweden’s central bank unexpectedly unleashed more monetary stimulus, cutting rates further below zero to -0.35 percent, a record low, while it acknowledged that Greek uncertainty posed a risk to growth.


The euro was steady though on a fragile footing ahead of America’s jobs report. On the one hand, Greece’s debt crisis has overshadowed rosier U.S. fundamentals, limiting positive traction for the dollar. However, the seemingly never ending Greek crisis has started to take an increasing toll on the euro. The hope is that once Greece’s Sunday referendum comes and goes that Athens and its creditors would quickly hammer out a deal that keeps the debt-choked nation in the euro for the foreseeable future.


A forecast-undershooting U.S. employment report weighed on the dollar as it seemingly moved the needle to December from September for the Fed to raise interest rates. Nonfarm payrolls rose 223,000 in June, under forecasts of 230,000 while figures for prior months got revised lower. Unemployment fell to a seven year low of 5.3 percent but that was due to a smaller workforce. Wage growth flat lined with a zero reading, missing forecasts of a 0.2 percent increase. The latest news on the job market wasn’t as good but it wasn't disastrous either. Going forward, the dollar may have a little less leeway to the north. The bigger picture remains unchanged with the Fed still likely to raise rates a handful of times over the coming year as ongoing job gains are expected to lead to faster growth.


The loonie rebounded from 2 ½ month lows as the greenback weakened in the wake of U.S. employment figures that fell short of forecast. No holiday for oil prices Wednesday had taken a big toll on Canada’s commodity currency. Underlying loonie sentiment took a turn for the bearish this week after local growth data disappointed, suggesting another rate cut may be on the table.


Sterling kept around its most affordable levels since mid- June as disappointing news on Britain’s economy this week threw a wet blanket on expectations the Bank of England (BOE) might raise interest rates sooner. Moreover, sterling strength has shown signs of holding back Britain’s economy, a trend that if sustained would ultimately delay the timing of a U.K. rate hike. The governor of the BOE, meanwhile, said the bank stood ready to lend more help should the Greek crisis spiral out of control.

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