Currency Market Analysis

Jun 30, 2015 | Currency Market Analysis

Global Themes

The dollar got off to a firm start to the final day of the second quarter with end of month activity, such as positioning and book balancing, impacting trade. Uncertainty over when the Federal Reserve would boost interest rates for the first time in nearly a decade contributed to the dollar’s overall weaker quarter with the U.S. unit on track to shed about 2 percent in value versus the euro and nearly 3 percent against the U.K. pound. It’s official: Greece’s finance chief confirmed Athens wouldn’t pay the IMF the nearly $2 billion it owes the global lender today, moving the country a big step closer to bankruptcy. Next on the agenda for the Greek crisis will be a Sunday referendum over whether the debt-burdened nation should accept another round of austerity in exchange for more rescue money to keep solvent and a member of the euro. The euro weakened after logging a remarkably resilient day in which it staged a 3-cent rebound after plunging to four-week lows. Month-end movements and euro zone data showing a lack of improvement on inflation and unemployment added to the euro’s weaker disposition. Canada’s dollar was steady. U.S. consumer confidence data is due out today.


The loonie was at risk of logging a losing month against the greenback after monthly growth figures showed the northern economy failed to grow this year. Canada’s economy unexpectedly contracted 0.1 percent in April compared to forecasts of a modest gain. Canada’s economy hasn’t grown on a monthly basis since December, highlighting its fragile shape and keeping the door open to lower interest rates north of the border.


Sterling drifted lower on the final day of the first half, though it was well on its way to a solid month of nearly 3 percent appreciation against the dollar. Signs of a strengthening U.K. economy have brought forward market expectations for Britain to raise interest rates, buoying the pound. Moreover, unease over the Greek crisis has bolstered the pound’s safe haven allure. The final estimate of U.K. first quarter growth came with a one notch upgrade to 0.4 percent.


The dollar squeezed out a gain early Tuesday, benefiting from month- and quarter-end flows as many squared positions and balanced their books after a volatile month. Lingering doubts about the underlying shape of the U.S. economy and when it would be healthy enough to withstand higher interest rates from the Fed contributed to the dollar’s underperformance in June, with it on track to shed about 2 percent against a currency basket. To get back on a bullish track, the dollar would need upbeat news this week on the U.S. job market which would make the Fed more confident in raising rates in the months ahead.


Europe’s resilient single currency was on track for a monthly gain of nearly 2 percent against the greenback, weathering so far Greece’s still festering debt crisis. The Greek woes have caused the euro to bend and sway but it hasn’t broken yet. The euro has found resilience in hopes that a deal to momentarily solve Greece’s woes may soon come to fruition. Uncertainty remains sky high, however, keeping the euro on a vulnerable footing. Uncertainty is expected to shadow the euro whether Greece on Sunday votes “yes” or “no” in a referendum to accept stiffer austerity measures from the nation’s creditors. The hope is that once the referendum is out of the way, Greece and its creditors will try anew to reach a deal. No improvement this time for the euro economy whose rate of inflation slowed to 0.2 percent in June from 0.3 percent in May, though it kept out of the red for a third straight month. Unemployment idled at a still high 11.1 percent in May.

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