Currency Market Analysis

Nov 18, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar eased off seven-month highs as caution and uncertainty reigned ahead of today’s release of the minutes from the Federal Reserve’s last meeting in late October. Markets hope to glean clues on the immediate road ahead for U.S. interest rates. Will the minutes sow doubts about a December rate hike, signal trepidation over the dollar’s dominance or hint at full steam ahead for a rate rise? Should the minutes, which will shed more light on what policymakers discussed behind closed doors, fall short of signaling a rate hike when the bank renders its final decision of the year on Dec. 16, the dollar could lose more ground. The U.S. currency had gained nearly a nickel in value against the euro in the 12 days leading up to the Fed’s last meeting on Oct. 27-28. The dollar has added to its gains since then, appreciation that has proven bad for the U.S. economy. The Fed minutes are due today at 2 p.m. ET.


Caution ahead of today’s minutes from the last U.S. central bank meeting helped the euro catch a breather and steady above seven-month lows against the dollar. The euro of late has suffered a double whammy in expectations that the European Central Bank (ECB) could chop its borrowing rates to new all-time lows next month, which would diminish the euro’s value, while the Fed could go in the opposite direction and raise U.S. borrowing costs.


Sterling treaded water above recent six-month lows against its U.S. counterpart. Has the market turned overly dovish on the outlook for U.K. interest rates? A top Bank of England official seemed to think so. Deputy Gov. Ben Broadbent said not to focus solely on inflation to shape expectations for U.K. interest rates, and to consider the breadth of the recovery. Still, dovish sentiment should prevail until inflation climbs out of the red.


The yen isn’t far from a three-month low against the dollar and that level could be realized soon should today’s Fed minutes signal full steam ahead for a U.S. rate hike in December. The yen has wobbled since growth data from Japan on Monday confirmed a renewed downturn, or recession, in the world’s No. 3 economy which could require stronger, yen-weakening central bank stimulus to dig it out.


Canada’s dollar held close to six-week lows, a weak level that has it about a cent away from 11-year lows. Oil firmed but the generally low level of commodity prices has weighed on resource-linked currencies like Canada’s. Fundamental catalysts lurk for the loonie in Friday data on Canadian consumer inflation and retail sales with moderation generally on the cards for both.


The dollar shrugged off mixed news on America’s housing market and instead set its sights on Fed minutes, due today at 2 p.m. ET. Taking the sting out of an 11 percent fall in housing starts, the most in seven months, building permits, a forward leaning indicator, met expectations with a solid 4.1 percent rise. The Fed’s hawkish outlook has been the main architect of the dollar’s resurgence. How likely today’s minutes hint at a December rate hike will help steer the dollar ahead of the bank’s Dec. 16 decision.

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