Currency Market Analysis

Dec 15, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar kept under water against its biggest peers as Federal Reserve officials gather to mull their final interest rate decision of the year. The Fed today embarks on its last two-day meeting of the year which is expected to wrap up tomorrow with an announcement to raise American borrowing rates for the first time since 2006. Having rallied for months on expectations for the Fed to finally move its key rate above zero, the dollar has fallen victim of late to being sold with the event close at hand. Moreover, a sense the Fed may only tiptoe rates above zero have fastened a near-term lid on dollar appreciation. In addition to the Fed’s rate announcement Wednesday, due at 2 p.m. ET, currency and market volatility is liable to be further stirred by the central bank’s forecasts for the economy and interest rates, and the post-meeting press briefing by Fed Chair Janet Yellen. Are you prepared in the event of an unfavorable move?


Sterling was in a shallower hole on the week against the dollar after U.K. inflation made a tepid comeback, rising for the first time in four months. Annual consumer prices eked out a 0.1 percent gain in November, meeting consensus forecasts. The data, though mildly encouraging, still depicts anemic inflation and an economy in need of record low interest rates for quite some time yet, a dovish outlook that is ultimately sterling negative. Sterling faces a double dose of risk events Wednesday in the Fed and influential data on Britain’s job market.


The euro seesawed after notching six-week peaks against the dollar earlier Tuesday. Major currencies like the euro have traded with a skittish bias ahead of the Fed’s high stakes interest rate decision on Wednesday. Meanwhile, the ECB’s launching of new stimulus earlier this month, albeit in less forceful fashion than anticipated, has served as a catalyst to help the euro recover from recent seven-month lows. Positive news from the juggernaut German economy Tuesday also buoyed the euro with news of investor confidence brightening for a second straight month and reaching the rosiest level in four.


Why the seven-week high for Sweden’s crown against the dollar? The nation’s Riksbank left its borrowing rates unchanged at minus 0.35 percent while it sounded a sanguine note on recent economic developments.


The loonie kept its chin barely above 11-year lows and remained on slippery footing after local factory data disappointed. The 1.1 percent fall in area manufacturing sales in October was more than two times weaker than forecast of a 0.5 percent decline. The next critical events on the loonie’s radar are the Fed tomorrow, local inflation Friday and monthly growth on Dec. 23. Today’s data raises doubts that Canada would return to growth in October after contracting 0.5 percent in September.


The dollar zigzagged into positive territory on the day after the 2.0 percent rise in annual underlying inflation was the most since May 2014 and likely enough to put the icing on the Fed’s first rate increase in nearly a decade. But in keeping with the economy’s uneven recovery, the Empire State index contracted with a minus 4.6 reading in December which marked an improvement from November’s minus 10.7. Big risks and uncertainty lurk tomorrow! Customers should protect their prized budget rates by leaving limit orders today to ward off any surprise reaction to the Fed Wednesday. What the Fed does and says can have a major impact on the dollar.

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