Currency Market Analysis

Nov 04, 2015 | Currency Market Analysis

Global Themes

Signs that conditions may be ripening for the Federal Reserve to boost interest rates buoyed the U.S. dollar which flirted with three-month highs against the euro and a currency basket. Numbers from the U.S. this week hinted at stabilization in manufacturing. Meanwhile, global risks to the U.S. economy seem to be in shorter supply after services growth in China and Europe showed acceleration. For the dollar to gain a head of steam, America’s jobs report, due Friday, would need to print near expectations of a gain of 180,000 payrolls in October. The euro kept on its back foot after the head of the European Central Bank (ECB) this week added to expectations the central bank could beef up stimulus in December. It was ‘steady Wednesday’ for sterling ahead of the Bank of England’s so-called ‘Super Thursday’ as mixed U.K. services news left it little changed. The Canadian dollar’s oil-driven buoyancy will be tested by local trade data today.


The euro remained anchored toward the bottom of its range, not far from three-month lows against the dollar. Another dose of dovish rhetoric from the president of the ECB this week kept the 19-nation central bank on track to boost stimulus as early as December. Euro zone services growth quickened in October but at a pace consistent with low-flying growth over the final quarter of the year.


It was ‘steady Wednesday’ for the pound on the eve of the Bank of England’s ‘Super Thursday.’ U.K. services growth topped forecasts, rising to 54.9 in October from a two-year low of 53.3 in September. The data dovetailed with news this week that showed the fastest U.K. factory growth in more than a year which hinted at a solid start to the fourth quarter for Britain’s economy. However, somewhat subtracting from today’s report was news that business optimism hit a 2 ½ year low.


The Aussie dollar held firm, buoyed by the Reserve Bank of Australia's (RBA’s) steady hand on interest rates this week, which disappointed some, and news of the fastest services growth in China in three months, which offered tentative hope of stabilization for Australia’s chief trade partner.


Oil around $48, a multiweek high, and a smaller trade deficit north of the border kept a sturdier floor in place under the loonie. Showing the weak loonie helping to prod an export-led recovery, Canada’s trade deficit narrowed more-than-expected to C$1.7 billion in September from C$2.7 in August. Justin Trudeau is due to get sworn in today as Canada’s new prime minister.


Today’s initial batch of U.S. data helped clear a path to a Fed rate hike next month and helped the dollar to new session highs. Private employers, according to the ADP survey, added 182,000 jobs in October, slightly eclipsing forecasts. America’s $40.8 billion trade gap in September was the smallest in seven months, suggesting third quarter growth could get revised up from 1.5 percent. More risk events ahead today at 10 a.m. ET when Fed Chair Yellen testifies on Capitol Hill and data on U.S. services growth are due.

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