Currency Market Analysis

Dec 01, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar made its December debut a little weaker, ceding strength after coming within a hair’s breadth of fresh multiyear highs on Monday. Expectations for central banks in the U.S. and the euro zone to go their separate ways with monetary policies have fueled the dollar’s late year dominance. Looser or lower rate policies in the euro zone are widely expected to become reality on Thursday while many believe America’s Federal Reserve is a few weeks from boosting its base rate for the first time in almost ten years. The opposing policy paths have fueled a stampede out of the euro and into the dollar, lifting it to its highest in seven months. The euro Tuesday moved guardedly higher, finding some poise in surprise news of a down tick in area unemployment to 10.7 percent, a multiyear low. The Aussie and kiwi dollars exploded higher after the former’s central bank left interest rates unchanged. Canada’s loonie also firmed.


The euro moved above seven-month lows after area unemployment unexpectedly fell to a still-high and unhealthy 10.7 percent in October, the lowest in nearly four years. The euro should not enjoy much headroom ahead of the European Central Bank's (ECB’s) eagerly anticipated and much-hyped decision on Thursday at which it’s expected to cut lending rates and/or increase or lengthen its monthly bond purchases. Both measures are aimed at enticing banks to lend and consumers and businesses to borrow and spend to boost the economy. It’s tough to predict what the European Central Bank (ECB) decision would do to the euro. Therefore, we urge customers to plan for a worst case outcome by leaving a market order today to stem any unforeseen fallout come Thursday.


Sterling pared overnight gains against the dollar after data showed Britain’s factory sector hit the brake last month. Purchasing manager sentiment slowed more than expected to 52.7 in November from a 16-month best of 55.2 in October. The marked slowdown in manufacturing kept a U.K. rate hike off the table, a leading source of pound weakness of late.


The Swiss franc failed to participate in the general rally for other currencies against the dollar, restrained by a trifecta of downbeat data on the Alpine economy. Growth stalled in the third quarter and both retail sales and manufacturing contracted. Franc buyers are enjoying a holiday bargain with the Swissie near five-year lows against the dollar.


The Aussie and kiwi dollars burst to multiweek highs after the former’s central bank kept its cash rate parked at 2.0 percent, and sounded a cheerful note on its economy, leaving the door barely ajar to a rate cut in the months ahead.


Mixed news on Canadian growth put a halt to the loonie’s overnight rally. Canada’s first half recession ended in the third quarter when the economy grew at an annualized rate of 2.3 percent, a whisker under forecast. The monthly snapshot was poor, showing a surprise 0.5 percent contraction in September, for the sixth negative reading in 9 months. The Bank of Canada looms Wednesday.


The dollar took a breather and edged below fresh seven and eight-month highs against the euro and a currency basket. Euro selling cooled on caution ahead of the European Central Bank (ECB) Thursday, and data showing euro zone unemployment improved. The U.S. ISM manufacturing index at 10 a.m. ET will be next to drive the buck, with mild improvement on the cards. 

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