Global Themes

Elevated global risks kept the safer U.S. dollar well supported. Extending an upswing, the trade-weighted Dollar Index climbed to early January highs thanks to across the board gains versus rivals from Europe, Canada and emerging markets. The Swiss currency was a notable mover as it depreciated by nearly a franc in a matter of minutes overnight that knocked the Alpine unit to mid-November lows. The dollar continues to find a supporting cast from worries about a slowing world economy and uncertainty related to Brexit and U.S.-China trade talks. The buck also made headway versus the yen which fell to fresh 2019 lows. The dollar wavered weeks ago after the Fed turned decidedly cautious and closed the door to imminent interest rate hikes. The dollar has since gained traction given the lack of an alternative to the greenback which remains well supported by solid fundamentals which contrast slowing growth overseas.

EUR

The euro slid to a Jan. 24 low against the greenback, its weakest in more than two weeks. Europe’s faltering economy will stay in the spotlight this week which could leave the single currency vulnerable. Thursday will be critically important with numbers due on German and euro zone growth during the final quarter of 2018. Top economy Germany already has one foot in recession after it contracted by 0.2 during the third quarter. Odds are seemingly on Germany’s side that it may dodge recession with fourth quarter growth expected up by a scant 0.1%. Any disappointing data could potentially be the euro’s ticket lower. 

GBP

Uninspiring U.K. data drove sterling toward recent multiweek lows against its American counterpart. As expected, Britain’s economy slowed to a 0.2% pace during the fourth quarter from a 0.6% rate in Q3. Data on trade and factory growth underwhelmed forecasts which offered evidence of how Brexit uncertainty has squeezed the economy. Look for the coming week to shed some light on the next steps in the Brexit process with a midweek update to Parliament by the prime minister. Data Friday is forecast to show U.K. retail sales inched up after a December plunge.

CAD

Canada’s dollar was broadly flat though weaker oil prices, if sustained, could leave the commodity-driven currency at risk in the day ahead. The loonie pared weekly declines Friday after bullish Canadian jobs data kept a local interest rate hike in the conversation. Canada netted more than 60K jobs last month, an amount about 10 times stronger than expected. Despite the sharp spike in hiring for the second time in three months, money markets still see a relatively slim chance (i.e. around 20%) of a rate hike from 1.75% by year-end.

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