Currency Market Analysis

Aug 27, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar kept on the rebound, notching highs for the week against the euro while it reached its strongest in three weeks against the U.K. pound. Commodity currencies also made a comeback with the Aussie dollar and loonie above six and 11-year lows, respectively. The tentative rebound in market confidence stems from a signal from a Fed official who this week downplayed the chance of a September rate hiking, calling it “less compelling” in the wake of the global turbulence. Market morale has also been heartened by Beijing’s multiple measures this week, like cutting interest rates, to help quell volatility. And sharing the spotlight with the world’s No. 2 economy has been a resilient No. 1. America’s economy struck a pose, with durable goods up unexpectedly. The world’s biggest economy will keep in the limelight today with data on revised second quarter growth and weekly jobless claims.


The euro’s true colors are starting to show again. The euro made a four-cent swoon from this week’s seven-month highs, showing how its recent resilience has had little to do with fundamentals which remain weak in Europe, contrasting the brighter picture in the U.S. The euro continues to be held hostage to movements in broader markets, like stocks. When equities tumble, the euro tends to fare its best as risk-averse investors are forced to buy back the low-yielding euro and discard riskier, higher-yielding assets. Market sentiment remains highly fragile, which should keep the euro on a volatile footing.


Sterling tumbled further away from multi-month highs, hitting its weakest in three weeks against its U.S. counterpart. The pound has fallen prey again to confusion over Britain’s interest rate outlook. Global instability and the risk it poses to Britain’s economy have many penciling in a later rate hike from the nation’s central bank. A U.K. rate hike should remain a tough sell until inflation rises from near zero levels.


The Aussie dollar edged above six-year lows as rallying global stocks tempted many to wade back into higher-yielding, riskier assets. China remains a wild card for the Aussie and until things materially brighten for the world’s second biggest economy the Aussie would remain prone to further falls.


Oil’s reclaiming of $40 helped the loonie pare losses and move above 11-year lows. The better market mood has helped dial down pressure on Canada’s commodity-battered currency. Any reprieve may not have legs with crucial data on the docket next week that might confirm the economy tipped into recession.


Fewer jobless claims and stronger U.S. growth during the spring quarter pulled the dollar further away from multi-month lows. Showing the economy was in fairly sturdy shape before the latest market chaos, second quarter growth got revised up a 3.7 percent annual rate from an initial estimate of 2.3 percent and forecasts of 3.2 percent. Jobless claims improved to 271,000, down from 277,000 last time and forecasts of 274,000. The economy’s resilience this week suggests a higher likelihood of the Fed raising rates at one of its three remaining meetings this year, bolstering the dollar’s broader outlook.

Get the daily currency market analysis in your Inbox

Published five days a week, this newsletter provides day-to-day trends and activities affecting the market in easy-to-understand snapshots.