Currency Market Analysis

Sep 23, 2015 | Currency Market Analysis

Global Themes

The dollar drifted lower after notching new two-week highs against the euro and a currency basket. The dollar of late has been directionally challenged on account of the Federal Reserve’s to-be-determined timeframe for boosting interest rates for the first time in almost 10 years. Expectations a U.S. rate hike could come in the months ahead continue to underpin the dollar but the uncertainty of it all limits its gains. Meanwhile, news of the weakest manufacturing in China, the world’s No. 2 economy, in 6 /2 years amounted to a negative at the margin for the dollar. A lack of stabilization in China risks keeping a U.S. rate hike on ice for longer, with the Fed last week citing weakness there as a factor to stand pat on policy. The dollar was a little weaker overall but managed a two-week high against the U.K. pound and rebounded from multiweek lows against the Aussie dollar. The ECB chief speaks today at 9 a.m. ET.


The euro’s ability so far to keep above a key level against the dollar, coupled with caution ahead of remarks shortly from the ECB chief, helped the single currency edge above its weakest in more than two weeks. Any uttering of dovish jargon from Mr. Mario Draghi could tip the euro lower, particularly if the bank president should voice concern over the bloc’s recovery and signal a growing chance of the bank delivering a stronger dose of monetary medicine.


Sterling’s downswing gathered pace as it notched two-week lows Wednesday, shedding nearly 4 cents from Friday’s three-week peak. Sentiment has dimmed on the pound as skittish market confidence has buoyed haven units like the dollar and yen. It also hasn’t helped that parts of the U.K. economy have shown moderation, slightly raising the bar to a British interest rate hike.


Fresh signs of fragility in Australia’s top export market, China, extinguished the recent rebound in the Aussie dollar. After flirting Friday with a one-month high, the Aussie sank Wednesday to Sept. 10 lows after a gauge of Chinese manufacturing printed at 47.0 in September, the lowest in 6 /2 years, compared to forecasts of 47.5, and a tad weaker than 47.1 in August.


The loonie weakened toward 11-year lows after a gauge of Canadian retail sales underwhelmed. Headline consumer spending rose 0.5 percent in July, meeting forecasts, but the previous number got downgraded, while excluding auto sales disappointed with a zero reading.


The dollar continued its wandering ways of late, struggling to keep on a set course on account of the Fed’s still hazy outlook for rates. Expectations the Fed would finally boost its key rate in the months ahead are a general boon for the dollar with central banks in Japan and euro zone expected to go in the opposite direction and lend more support to their fragile recoveries. Until a Fed rate hike comes into sharper focus the dollar would remain directionally challenged.

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