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Currency Market Analysis

Jun 02, 2015 | Currency Market Analysis

Global Themes

The euro roared back from late April lows against its U.S. counterpart following constructive headlines from Europe. The euro’s big 1% bounce to its highest in more than a week underscored the uncertain and volatile market backdrop, leaving vulnerable the bottom lines of companies with unhedged or unprotected exposures. For the first time in six months, inflation in the euro zone climbed, rising by a more than expected 0.3% in May. Greece, meanwhile, seemingly took a step toward securing badly needed rescue money as Athens submitted a new proposal to its creditors who last night held an emergency meeting on Greece. The Aussie dollar was another standout star after its central bank left untouched its key lending rate at 2.0% and stopped short of signaling a bias to cut rates further. The otherwise weaker U.S. dollar steadied against the yen after clocking fresh 12-year peaks earlier. The dollar outperformed on Monday after stronger than expected manufacturing data offered evidence of an economy digging its way out of a first quarter hole. America’s jobs report on Friday is considered highly critical to the dollar’s coming prospects.

GBP

Sterling recovered from its brush Monday with one-month lows against the dollar, riding the euro’s coattails higher. Underlying sterling sentiment has dimmed following a run of lackluster data that has underlined Britain’s low interest rate outlook for the foreseeable horizon. The pound’s better tone could prove short-lived if U.K. services growth on Wednesday should show some moderation as expected. No change is expected when the Bank of England renders a policy announcement Thursday. The minutes of this week’s meeting will be released June 17, the same day the Fed announces its next decision.

AUD

The Aussie dollar bounced above month and a half lows after Australia’s Reserve Bank left its main interest rate at a record low of 2.0% and stopped short of maintaining a lower rate bias. The notion that rates have bottomed Down Under buoyed the Aussie. Markets, though, still see an elevated chance of another rate cut before yearend with leading trade partner China at risk of slowing further.

CAD

Canada’s loonie rebounded from mid-April lows as the U.S. currency pulled back and oil prices topped $60. The fragile shape of Canada’s economy will leave the loonie vulnerable to testing new lows over the short run. Look for fundamental drivers in data Wednesday on Canada’s trade balance and Friday figures on employment. Beware U.S. importers as improvement is on the cards for both surveys which if realized could strengthen the loonie and weaken the big dollar. Consider taking some cover today with the loonie near its most affordable levels since April 15.

EUR

The euro exploded above a key level against the dollar thanks to a pair of constructive headlines from Europe. Inflation turned positive for the first time since November, climbing by a healthier than expected 0.3% in May which suggested the bloc may have weathered the worst of its bout with economy-strangling deflation. Greece had yet to win more rescue money but it seemingly toward steps toward a deal as Athens submitted a new list of reforms to its creditors who held overnight talks on Greece’s bailout. The euro’s high sensitivity to news related to Greece should keep it on an unpredictable path for the foreseeable future. Contact your account manager today about how you can protect your cash flow from adverse market moves. The ECB renders a policy decision and press conference Wednesday, an event with the potential to stoke further euro volatility.

USD

The dollar’s upturn since mid-May suffered a setback Tuesday as a turn for the better in Europe rewarded the single currency with a rally. Concrete signs of the U.S. economy healing from its first quarter contraction should help limit the dollar’s fall. Of critical importance for the dollar and the outlook for higher U.S. interest rates will be Friday’s jobs report. Forecasts call for a gain of 225,000 jobs in May and unemployment to hold at 5.4%, a seven-year low.


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