Currency Market Analysis

Dec 23, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar was mixed to firmer in holiday-hushed trade. The few market players around ahead of the holidays showed little appetite to stake meaningful bets, keeping major currencies confined to tight ranges. The dollar of late has drawn limited support from its bullish bias, instead succumbing to bouts of profit-taking after a year of near double-digit appreciation. The Federal Reserve’s first rate hike in nearly 10 years last week put a more durable floor under the dollar. But to keep it there U.S. data would need perform constructively to keep the central bank on a higher rate path. 


Those with exposure to the U.K. currency continue to enjoy one of the best markets all year. Sterling kept within a penny of Tuesday’s eight-month trough as reasons to shun the British unit continued to mount. Data today showed a surprise markdown in third quarter growth to a 0.4 percent quarterly rate, below forecasts of an unchanged reading of 0.5 percent. The pound also has been dogged by uncertainty over the potential can of worms a U.K. exit from the European Union could bring. The U.K. government could hold a referendum on the matter by the middle of 2016. 


Dwindling market participation ahead of the holidays amounted to a reduction in those willing to add to bets the single currency would continue to lose value. The euro’s holiday reprieve may not translate into a meaningful rebound as its bearish disposition leaves it vulnerable to selling on rallies. 


Oil remained the critical catalyst for the loonie but a gain for the key commodity helped the Canadian dollar hold above 11-year lows hit last week. The shock slide in oil to multiyear lows below $40 was a primary factor behind the loonie’s near 20 percent collapse against the greenback in 2015. Have interest rates in Canada bottomed? Northern data today on how monthly growth and retail spending fared in October should shed some light. 


The dollar drifted higher against most peers in holiday-quelled trade. An early release of American consumer spending came in at a solid pace of 0.3 percent in November, matching forecasts. The session ahead also features U.S. reports on personal income and inflation, and durable goods, seen down 0.6 percent last month after a robust gain of nearly 3 percent in October.

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