Global Themes

America’s dollar was mixed but mostly flat a day after it snapped its longest winning streak in years. The greenback held firm against the euro, scored a new six-week peak versus the yen but tumbled against rivals from Sweden and New Zealand. Sterling and Canada’s dollar were little changed. The U.S. president may not be happy with the tentative deal that lawmakers reached to avoid another government shutdown, but markets are. Cautious elation that America might dodge another shutdown, coupled with hopes that U.S.-China trade talks were progressing, boosted risky assets like stocks and commodities at the expense of safer plays like the greenback. While the dollar snapped its 8-session winning streak Tuesday, its longest in two years, it remained on elevated terrain and near its highest in months.

NZD

Both the kiwi and Swedish currencies rallied in response to area central bank decisions that stopped short of markets’ dovish expectations. Down Under, the Reserve Bank of New Zealand left its official cash rate at 1.75% and telegraphed the next move could be either up or down but not likely any time soon. The RBNZ sketched a steady outlook for lending rates into 2020. Some had bet that it might extend the low rate horizon into 2021.

EUR

The euro weakened toward three-month lows as the drumbeat of dreadful European data grew louder. The nearly 1% decline in euro zone factory growth in December was two times larger than expected which raised concerns that area fourth quarter growth data Thursday might also disappoint. Mounting signs of weakness would add pressure on central bankers to jumpstart stimulus measures to stave off a deeper downturn, a negative for the already low-yielding euro.

USD

Warmer than expected U.S. inflation worked in the dollar’s favor but the still-benign level won’t alter the steady outlook for Fed policy over the foreseeable future. Headline or overall consumer prices slowed to an increase of 1.6% in January from 1.9% in December, which just eclipsed forecasts of 1.5%. Less volatile core or underlying inflation steadied at 2.2%, a tick higher than expected. A U.S. rate hike appears off the table until mid-year, at the earliest, as the Fed takes stock in its series of rate rises over the past several years. In a low interest rate, low growth world, the dollar is showing signs of reclaiming its only game in town status.

GBP

Sterling edged up despite news that U.K. inflation had slowed more than expected last month to the weakest in two years. Consumer price tipped below the Bank of England’s 2% goal to 1.8% in January. The lower cost of living is good news for consumers but the slower price growth can buy the country’s central bank more time to leave borrowing rates at a low 0.75% for longer as it monitors which road Britain will ultimately take out of the EU.

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