Currency Market Analysis

Sep 24, 2015 | Currency Market Analysis

Global Themes

A slightly softer U.S. dollar exploded to 13-year highs against its Norwegian counterpart after the country’s central bank unexpectedly slashed interest rates. Norway’s central bank cut its key rate to 0.75 percent from 1.0 percent to shore up its oil-battered economy. An otherwise mildly subdued U.S. currency held below multi-week peaks against the euro. Europe’s single currency got a boost from the European Central Bank's (ECB’s) signaling Wednesday of a readiness but not a willingness just yet to strengthen its already potent monetary policies. Canada’s loonie steadied after a fall Wednesday to fresh 11-year lows. America’s economy and central bank chief will be in focus today to help give the dollar a more fundamental footing. Numbers come due on weekly jobless claims, durable goods and new home sales. The market will parse 5 p.m. ET remarks from Fed Chair Janet Yellen to gauge the likelihood of a U.S. rate hike before the end of the year.


The Swiss franc slid 1 percent against the Euro on Wednesday after ECB President Mario Draghi said it was too early to discuss the need for more ECB QE which boosted the Euro. Meanwhile rumours of SNB intervention spooked franc traders. On September 11 the franc fell to its worst levels in 2015 versus the Euro but has since rallied. But rumours surfaced yesterday that the SNB may have stepped in to keep the franc weak. China also reportedly intervened yesterday to lift the CNY and stop the currency from weakening further.


Draghi wrong-footed investors yesterday, causing the Euro to rally by as much as 1.5 percent against Sterling and 0.7 percent against the US dollar. Expectations were that ECB President Mario Draghi would use yesterday’s monetary policy speech to lay the groundwork for more QE in the Euro Zone. However, Draghi said that while risks from emerging markets (China) are being closely monitored, it was too early to decide on whether more stimulus was required. The change in mood comes as some ECB members reject calls for the ECB to ramp up stimulus, only eight months after QE was launched back in January.


Fed Chair Janet Yellen will be delivering a university lecture at 22:00 today. Yellen may use this opportunity to remind investors that the US is still confident of raising rates and could do so next month. This could accelerate the US dollar’s gains. The US dollar fell sharply on September 17 when the Federal Reserve held off from raising rates amid financial market volatility related to China. This hurt the US dollar and allowed the Euro to rally and Sterling to jump to three-week highs. But since the sell-off the US dollar has bounced back, gaining by over 3 percent and 2 percent against the Euro and Sterling respectively.


Norway could cut interest rates one more time today, as the recent slump in oil prices erodes business confidence and keeps unemployment at 10-year highs. However, if the Norges Bank suggests the worst may be over, this could allow Norway’s currency to rally. The Nokkie has bounced back by about 3% since hitting 2004 lows against Sterling last month.

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