Currency Market Analysis

Dec 17, 2015 | Currency Market Analysis

Global Themes

Broad gains for the U.S. dollar Thursday took it to one- and two-week peaks against the euro and sterling. The dollar also clocked its strongest in two against a currency basket. The Federal Reserve’s first interest rate hike in 9 years Wednesday buoyed the dollar while it left more, perhaps four, on the table for the coming year. The Fed’s decision to boost rates was a clear-cut sign of its confidence in the health of the world’s No. 1 economy and highlighted the outperforming nature of American fundamentals. The dollar emerged with its bullish bias intact, though its appreciation so far has been modest and orderly, as the Fed’s decision to hike rates was a united one with no dissenters, sending a less dovish message than markets had anticipated. Norway’s krone outperformed its otherwise stronger U.S. counterpart after the nation’s central bank surprised with its decision today to keep its key rate parked at 0.75 percent.


The dollar maintained multiweek highs after good news on America’s job market suggested a far shorter wait for the next Fed rate hike. Weekly jobless claims fell some 11,000 to 271,000 from five-month highs last time above 280,000. Dollar bulls won’t like the surprise contraction in the Philly Fed index to -5.9 in December, which offered more evidence of the strong dollar restraining manufacturing. 


Norway’s crown stabilized above 13-year lows against the greenback after the Norges Bank unexpectedly kept its key rate unchanged at 0.75 percent. The recent slide in oil had many betting the central bank would slash rates to 0.50 percent. 


Sterling crashed through a key psychological support level against the dollar, notching two-week lows, after the Fed raised interest rates and mixed news on Britain’s economy suggested the Bank of England wouldn’t follow suit anytime soon. A spending spurge by U.K. consumers lifted retail sales by 1.7 percent in November. But in a reminder of the economy’s fragile underlying shape, a gauge of factory growth contracted for the eighth time in as many months. 


The oil-clobbered loonie hovered at 11-year lows the day after the Fed boosted its base rate for the first time in many years and signaled more to come in the year ahead. Local inflation data loom Friday and if forecasts for improvement come to fruition could help Canada’s dollar recoup some of its heavy losses. 


The euro unraveled some of its December gain against the dollar, hitting one-week lows, after the Fed raised interest rates and data from Europe’s top economy showed a surprise reduction in business optimism. The euro entered December below $1.06, but soon received a surprise shot in the arm after the European Central Bank (ECB) on Dec. 3 opted for less potent policies which eased a heavy weight on the euro. The key support level around $1.08 could soon give way if U.S. data keep the Fed on track to raise rates in the months ahead.


The yen depreciated to one-week lows against the dollar after the Fed bumped American borrowing rates higher for the first time in years while it appeared months away from doing it again. Meanwhile, Bank of Japan officials are carrying a soggy set of trade figures into their policy meeting this week, amounting to another headwind on the yen. Japan logged a trade gap of nearly ¥380 billion ($3.1 billion) in November, disheartening news that keeps the door cracked to yen-negative, lower rate policies.

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