Currency Market Analysis

Nov 05, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar pared a few gains but held strong overall at its highest levels in more than two and three months against the yen and euro. The dollar catapulted higher this week after bullish U.S. data collided with hawkish remarks from Federal Reserve Chair Janet Yellen. U.S. services growth proved the second-strongest in a decade while Ms. Yellen said that a U.S. rate hike next month was a ‘live possibility.’ Markets have waited a long time for the Fed to boost interest rates so the specter of the first increase in nearly a decade has caught the eye of the yield-seeker, buoying the dollar. Although the dollar is flying higher, it could face renewed turbulence should data between now and the Fed’s mid-December meeting give officials pause. Ahead of America’s always important jobs report Friday, markets today will get a final preview of the labor market in weekly jobless claims, seen sticking near multi-decade lows. 


A Fed chair talking interest rate hikes and oil below recent peaks put a lid on the loonie. Still, Canada’s dollar is largely held steadfast to a range against its U.S. counterpart, one it’s at risk of breaking out of depending on hope Friday jobs figures fare from both sides of the border. Forecasts call for a modest increase of 10,000 jobs last month which is expected to hold unemployment at 7.1%, a February 2014 high.


The euro’s 1% rally against the BOE-battered U.K. pound helped it catch a breather against the dollar. The euro kept in close reach of the July lows it clocked earlier in the session with its bearish bias finding reinforcement from news that German industrial contracted for a third month in a row in September, another cry for stronger stimulus from the ECB. The euro has fallen more than 6 cents since mid- October, putting it a little more than 4 pennies away from 12-year lows hit in March.


‘Super Thursday?’ Not for the pound. Sterling slumped after the majority of U.K. central bankers voted against a rate hike from record lows of 0.50% while the dovish tone to their quarterly inflation survey hinted at a rate hike on a far horizon, possibly 2017. Inflation is currently running below zero and bankers today forecast it to keep below 1% until the middle of 2016, well below their 2.0% goal. The bank also marked down its growth outlook over the coming year.


U.S. jobless claims posted the biggest jump in eight months but the dollar took the news in stride, holding near three-month peaks against a currency basket. The print of 276,000 from 260,000 last time held in a healthy range, suggesting ongoing strength in the labor market on the eve of Friday’s U.S. jobs report. America is expected to have added 180,000 jobs in October after a subpar gain of 142,000 in September. Also critical will be news on wage growth and unemployment, currently at a 7-year low of 5.1%. Robust job growth after a recent slowdown would move the needle to near done deal status on a rate hike next month, potentially putting the dollar on a short run course to clock new multiyear highs. 

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