Currency Market Analysis

Nov 16, 2015 | Currency Market Analysis

Global Themes

Safe havens like the U.S. dollar were in demand Monday as the attacks on Paris added a new layer of uncertainty for markets. The dollar neared seven-month peaks against the euro and a currency basket, while it held in close range of recent 11-year highs against its Canadian counterpart. Further souring the market mood was news that Japan’s economy shifted into reverse over the middle quarters of the year. The world’s No. 3 economy shrank at an annual rate of 0.8 percent in the summer quarter following a 0.7 percent decline in the spring. The latest soft patch for the Japanese economy weighed on the yen and kept it from benefiting from markets’ renewed appetites for safer plays. The Swiss franc firmed above eight-month lows, getting a safe harbor lift. In the week ahead, the impact of the Paris attacks on European and global growth will be in focus, along with the Wednesday release of the latest Fed meeting minutes.


The euro flirted with seven-month lows against its U.S. counterpart after the Paris attacks added a fresh layer of economic uncertainty. Fallout from the attacks could hurt area business and consumer confidence, and curtail travel to the region. Euro zone inflation enjoyed a slight upgrade to 0.1 percent annually in October from zero, a still-weak level that keeps pressure on the European Central Bank (ECB) to ease policy on Dec. 3.


Sterling weakened on the eve of U.K. data that’s forecast to show inflation held below zero for a second straight month in October. Consumer prices are expected to hold at minus 0.1 percent, the lowest since the 1960s. Weak inflation far below the Bank of England’s 2.0 percent goal reinforces the steady outlook for area borrowing costs over the coming year, a negative for the pound compared to the rate hike leaning U.S. central bank.


 Riskier, higher yielding currencies are typically the first in line to underperform when markets’ fear factor rises. That explains the Aussie dollar’s decline, with the neighboring kiwi following suit. The kiwi and the Aussie are home to the developed world’s juiciest yields at 2.75 percent and 2.0 percent, respectively, a positive during calmer times, but a negative during bouts of uncertainty and instability when skittish investors forgo yield for safety.


Risk-averse markets in the wake of the Paris attacks weighed on the loonie and kept it at six-week lows and about a cent away from recent 11-year lows. Weak data from north of the border added to the loonie’s weaker tone with manufacturing sales fall 1.5 percent in September, spending a second consecutive month in the red.


The dollar’s safer harbor status helped it weather another subdued reading on manufacturing. The Empire State index kept in the red for a fourth time in as many months, although it improved slightly to -10.7 in November from -11.4 in October. Chief drivers for the dollar in the week ahead should come from the Fed with minutes from bankers’ late October meeting due Wednesday, and policymakers slated to speak on Tuesday and Thursday.

Get the daily currency market analysis in your Inbox

Published five days a week, this newsletter provides day-to-day trends and activities affecting the market in easy-to-understand snapshots.