Global Themes

A soggy U.S. dollar hit multiweek lows Friday as a host of factors conspired to weaken it. The dollar notched two-week lows against the euro and Canadian dollar and hit its weakest in six against sterling. The buck is being discarded amid a thawing in U.S.-China trade tensions, slower U.S. inflation and a bold move by Turkey to raise interest rates. While broadly weaker, the dollar climbed to six-week peaks against the yen, another haven asset that’s lost favor. Data Thursday showed the first moderation in annual consumer prices all year, a move that suggests a bit less scope for the Federal Reserve to raise interest rates. The market still expects the Fed to raise rates later this month and again in December. But contained inflation could lead the Fed to pencil in fewer rate increases beyond this year. The buck today will look for a consumer lift as retail sales are forecast to rise.

USD

The dollar pared losses after retail sales, while underwhelming, didn’t alter expectations of strong summer growth. Retail sales eked out a 0.1% increase in August which was below forecasts of 0.4%. The dollar got bailed out by solid upward revisions to July spending. Taken together, the numbers were consistent with strong third quarter growth and kept the Fed on track for more rate increases this year. America’s economic calendar next week features mostly second tier data on regional manufacturing and housing. Next week is also be the week before the next Fed decision on Sept. 26 when the central bank is widely expected to raise rates to 2.25% from 2%.

YEN

The yen declined to six-week lows as markets took comfort from cooling trade tensions between the world’s two biggest economies. Markets cheered reports that the U.S. invited China back to the negotiating table to attempt to resolve their trade differences. The more buoyant tone to global markets allowed the yield on America’s 10-year Treasury to hover near the critical 3% level, elevated terrain that’s positive for USDJPY.

EUR

Riding a technical tailwind, the euro climbed to its highest in two weeks against the broadly weaker U.S. dollar. EURUSD topped its 100-day moving average, a move that bodes more bullishly for the single currency over the days ahead. While the ECB this week left borrowing rates unchanged and reaffirmed they would remain low until the second half of 2019 at the earliest, the euro took comfort from President Draghi voicing confidence in the underlying shape of the bloc’s economy.

GBP

Sterling rallied to six-week peaks against its weaker U.S. counterpart. Headwinds on the pound abated on cautious optimism in Britain and the EU potentially reaching a deal on their future relationship over the coming weeks. That’s allowed the pound to shrugged off a dire warning from the head of the Bank of England who flagged significant downside risks to the British economy and its currency should Britain and the EU fail to reach a trade agreement. U.K. fundamentals will be in focus next week with data Wednesday on inflation and Thursday on retail sales.

CAD

Canada’s dollar held near two-week peaks, boosted by higher oil near $69, keeping prices within a few bucks of two-month peaks above $71, and the lower greenback. Loonie buoyancy also stems from hopes that the U.S. and Canada were on a path to a new Nafta agreement and markets mostly betting on a Canadian interest rate hike to 1.75% next month. Canada’s rate debate will be fueled by influential data next week on consumer inflation, currently running at a 7-year high of 3%, and retail sales. Both surveys are due Friday, Sept. 21.

AUD

The sputtering U.S. dollar helped the Aussie dollar stabilize above 2 ½ year lows. The Aussie also found support from bullish local jobs data this week and the thawing in U.S.-China trade tensions. Upside still appears limited for the Aussie given the divergent outlook for monetary policy between the rate-rising U.S. and the stationary outlook for Down Under where borrowing rates are expected to remain at all-time lows of 1.50% over the foreseeable future.  

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