Currency Market Analysis

May 28, 2015 | Currency Market Analysis

Global Themes

The U.S. currency’s explosion to decade-plus highs against the yen kept it well supported against its other major peers. Renewed expectations for U.S. interest rates to rise this year while Japan is seen keeping its QE pedal floored helped propel the greenback to December 2002 peaks against the yen. The dollar was mostly steady against the euro on expectations that Greece would continue to find ways to stay solvent over the short run. Athens hopes to secure a deal for badly needed rescue cash by the end of the month. America’s currency has been on the mend since mid-May after better news on U.S. jobs, inflation and housing have revived expectations for the Federal Reserve to boost interest rates later this year. Against its other peers, the U.S. currency notched three and six week highs against sterling and the loonie, respectively. Although the greenback has fared better recently, its coming prospects will hinge on U.S. data and what it suggests about the underlying health of the world’s biggest economy. Over the remainder of the week, the sturdier dollar will be tested by weekly jobs data today and revised quarterly growth on Friday.


Better news to share and help foster business with GBP buyers as the U.K. currency nears month-end at its most affordable levels since the day after Britain’s election of May 7. As recently as mid-May the pound had strengthened to November 2014 highs, buoyed at the time by the surprisingly decisive win for Premier Cameron which took away political uncertainty that was expected to linger for much longer. It also didn’t help sterling sentiment today that U.K. first quarter growth went an unrevised 0.3 percent which was lighter than forecasts of 0.4 percent.


A trio of North American data left the loonie pinned at six-week lows and at heightened risk of topping a key psychological level. The news north of the border kept a headwind on the loonie as producer prices, a gauge of inflation around the bend, tumbled 2.4 percent in April, faster than its 1.8 percent fall in March. Canada’s current account balance, a broad measure of international trade, swelled to C$17.5 billion in the first quarter from a C$13.05 billion shortfall in the fourth quarter. The loonie’s fall could be slowed by weaker than expected U.S. jobless claims.


JPY buyers are finding the best market in more than a dozen years as the Japanese currency has fallen prey to renewed expectations for U.S. interest rates to rise over coming months. Customers with yen exposure may want to transact soon as recent plunges in the yen have been met by official opposition and jawboning on the part of senior Tokyo officials who have signaled a low tolerance of sharp volatility over a short period of time.


The euro struggled to hold above one-month lows against the resurgent greenback. The euro overnight had caught a momentary reprieve after a senior member of the European Central Bank (ECB) said that he didn’t expect the 19-country central bank to maintain negative interest rates over the long run. Markets seem to be giving Athens the benefit of the doubt that it would remain solvent over the short run. Still, until a deal on more money is finally reached between Greece and its lenders, the euro will be saddled with elevated, currency-negative uncertainty. Euro zone economic sentiment steadied in May at 103.8 which was a little better than forecasts of 103.5.


Come and get some AUD buyers! Australia’s unit tumbled a solid 1 percent from yesterday’s closing level, hitting its weakest since mid-April. Australia overnight let loose disappointing business spending data that crashed 6.5 percent in the first quarter, news that increased expectations for area interest rates to fall which contrasts expectations for U.S. rates to turn higher this year.


U.S. jobless claims unexpectedly rose but shouldn’t deal a meaningful setback to the dollar’s resurgence as the underlying trend remained one of strength. Weekly jobless claims jumped to 282,000 from 275,000, north of forecasts of a 270,000 print. That marked a dozen consecutive weeks below 300,000 for the survey, territory consistent with robust monthly hiring.

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