Currency Market Analysis

Nov 13, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar held firm on Friday and within a penny of six-month highs against the euro. The dollar continues to draw solid support from expectations that next month could bring higher borrowing rates in the U.S. and lower, euro-weakening ones in Europe. The case for lower lending rates in Europe gained traction in news today of a surprise slowdown in growth across the 19-nation economy. Euro zone growth slowed to a 0.3 percent quarterly rate in the third quarter, down from an already anemic 0.4 percent during the spring. Though firmer Friday, the dollar was on course for a modest decline on the week, having succumbed to a bout of profit-taking following its jobs-fueled rally from last week. American consumers today will have a say on whether the dollar can muster another week of gains with news on retail sales and consumer sentiment due. Canada’s loonie was less than two cents away from 11-year lows.


Australia’s jobs boom had the Aussie dollar on track for a resilient week, news that all but shut the door to further interest rate cuts Down Under this year. Australia added nearly 60,000 jobs last month, the most in 3½ years which pulled unemployment down to 5.9 percent, a five-month low, from 6.2 percent.


The euro treaded water above six-month lows against the dollar but a lid remained on its upside after subdued area growth over the summer served as a green light for European Central Bank (ECB) to double down on stimulus next month. Both the euro zone and Germany grew at a paltry rate of 0.3 percent during the summer quarter, down a tick from 0.4 percent in the spring. The euro has found a tentative floor with Fed officials keeping a wary eye on the dollar whose strength has proven bad for U.S. growth.


Ahead of key news on America’s main growth engine, the consumer, sterling was set for a solid, near 2-cent gain on the week against the dollar, helped by the U.K. currency’s outperformance against the euro. That’s helped the pound recover from six-month lows hit a week ago against the dollar. Despite its resilient week, Britain’s steady interest rate outlook for as far as the eye can see should limit gains for the pound and leave it vulnerable should news next week on U.K. inflation (Tuesday) and consumer spending (Thursday) meet markets’ subdued expectations.


The loonie held steady and within reach of 11-year lows against its U.S. counterpart. Subdued oil prices below $42 kept the loonie from benefiting from lackluster U.S. data on inflation and consumer spending.


The dollar was choppy in the wake of lackluster news on the economy’s main driver: The consumer. Despite last month’s jobs explosion, consumers barely spent with retail sales up 0.1 percent. So-called core spending rose 0.2 percent, half of forecasts of 0.4 percent but an improvement from the 0.1 percent increase in September. Core producer or wholesale inflation slowed to an annual rate of 0.1 percent in October from 0.8 percent. Though underwhelming, the news won’t scupper a Fed rate hike next month, limiting downside risk for the dollar.

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