Global Themes

The U.S. dollar emerged from America’s Fourth of July holiday a bit subdued and at its lowest in a week on a trade-weighted basis. The buck edged down against most rivals except the yen which underperformed as risk appetite returned with global stocks higher. Markets are cautiously cheering reports that the U.S. and EU might shift proposed tariffs on auto imports into reverse in a bid to dodge a full-scale trade war. The dollar has tended to outperform when trade tensions escalate on the view that the U.S. economy is in better shape than its peers to weather a trade war. With markets in a better mood for now, traders piled into risk and higher yields which pushed emerging markets like the Mexican peso higher. The greenback will take its cues today from jobs and services data and the minutes from the last Fed meeting. The week’s main events loom Friday when both the U.S. and Canada release jobs reports for June.


The dollar index descended to its lowest in over a week as global trade tensions cooled, and U.S. data underwhelmed on the eve of America’s critical monthly jobs report. U.S. private sector job growth, according to payrolls company ADP, rose by 177,000 in June, below forecasts of 190,000. Weekly jobless claims rose by 3,000 to a still historically low level of 231,000 which compared to forecasts of a print of 225,000. While below recent highs, for the dollar rally to resume players will parse the minutes from the last Fed meeting, due at 2 p.m. ET, to see how confident officials appear in four rate hikes this year and look to Friday’s jobs report for signs of strong job growth, low unemployment and higher wages.


A respectable week for Britain’s slow growing economy treated sterling to a gain. While America was off celebrating its 242nd birthday Wednesday, a report showed that U.K. services growth expanded at a faster pace in June. That data on Britain’s influential services sector came on the heels of manufacturing and other reports that eclipsed expectations. Taken together, the data kept the door ajar for the Bank of England to raise rates next month which would only be the bank’s second hike in 10 years. 


The Canadian dollar appreciated to mid-June highs as elevated oil prices above $74 offered a tailwind. The loonie is also benefiting from the view that the Bank of Canada could be less than a week from delivering its fourth interest rate hike since mid-2017, a move that would bolster the currency’s attractiveness to those seeking yield. Markets this morning are assigning about a 60% case of the BOC raising rates to 1.50% from 1.25% on July 11. Canada’s jobs report Friday, which is forecast to show hiring rose by 24,000 in June after shedding jobs in April and May, will offer the last meaningful look at the economy before policymakers meet. 


The euro bounced to its highest in nearly 3 weeks as bearish sentiment receded thanks to strong German factory data and signs of a tentative cooling in U.S.-EU trade tensions. A report that the ECB may pencil in a rate hike for Sept-Oct 2019 also helped to reduce negativity toward the single currency. German industrial orders rose for the first time in 5 months in May, a sign that Europe’s biggest economy may be on the mend after a recent slowdown.


Mexico’s peso rallied to its highest level in nearly two months as players favored risk and higher yields on cautious optimism that the world might avoid a global trade war. The peso often outperforms when market confidence brightens thanks to Mexico’s juicy interest rate of 7.75% which dwarfs the Fed’s comparable rate of 2%. Meanwhile, hope is on the rise that Mexico’s impending leadership change might help revive stalled Nafta negotiations which also worked in the peso’s favor, particularly since Latin America’s No. 2 economy sends the bulk of its exports north of the border.

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