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Currency Market Analysis

Oct 26, 2015 | Currency Market Analysis

Global Themes

The start of Fed Week found the U.S. currency a little below mid-August highs against the euro and a basket of six rival currencies. The dollar exploded out of confined ranges last week after the ECB sounded amenable to stronger stimulus in the months ahead to keep its nascent recovery on track. All eyes this week will be on the Fed’s policy decision Wednesday. Given uncertainty from abroad and expectations that the world’s top economy lost momentum last quarter, expectations are for the Fed to stand pat and keep rates at record lows near zero. Any hint from the Fed that it could leave its rates low for longer would risk a reversal in some of the dollar’s broad gains. The Fed announcement is due Wednesday at 2 p.m. ET.

EUR

Caution ahead of the mid-week Fed announcement helped the euro stabilize above mid-August lows. The euro has suffered a pounding in the wake of dovish remarks last week from the president of the ECB. Mario Draghi last week said the bank could use any of its policies – both interest rates and QE – to boost growth and inflation. It helped at the margin that Germany’s Ifo survey of business confidence fared better than expected, coming in at 108.2 in October, above forecasts of 107.8.

CAD

Underlying U.S. dollar strength and weaker oil prices below $45 kept Canada’s commodity influenced currency near the three-week lows hit Friday. The loonie will take a fundamental cue in Friday monthly growth data, forecast to show the economy grew a third straight month in August, albeit barely with forecasts of 0.1 percent.

USD

Pre-Fed caution caused the dollar to surrender a few gains after powering last week to mid-August highs. The dollar’s renewed popularity will be tested in the Fed’s decision on Wednesday. A risk for the dollar would be if the Fed should strike a similarly cautious note that rivals last week in the euro zone and Canada did. Any sense that a U.S. rate hike is officially off the 2015 table would open the door to renewed weakness in the U.S. currency. Lots of U.S. data this week: consumer confidence Tuesday, third quarter growth Thursday (forecast to slow to a 1.6 percent annual rate from 3.9 percent in Q2), and critical consumer inflation and spending on Friday.


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