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Currency Market Analysis

Oct 18, 2019 | Currency Market Analysis

Global Themes

America’s trade-weighted dollar wallowed around eight-week lows, hurt by constructive Brexit developments and mounting signs of a moderating U.S. economy. The euro, sterling and Canadian dollar were at or near multimonth highs. The greenback was little changed against the yen but slipped against peers from Switzerland, Australia and New Zealand. Currencies are biding time ahead of Saturday when Britain’s Parliament will vote on Prime Minister Boris Johnson’s new Brexit deal with the EU. The vote is considered a very close call. If the deal passes, it would amount to a gigantic victory for Mr. Johnson and by extension the U.K. pound which could shoot significantly higher. But if Parliament shoots down the deal, sterling would be at heightened risk of surrendering some of its massive 6% October gains. Brexit and Canada’s Monday federal election and Thursday’s Draghi ECB finale will be the focal points of the coming week.

EUR

The euro nudged higher, rising to seven-week peaks against the greenback. The euro is basking in the prospect of an orderly conclusion to Brexit later this month. An orderly Brexit, which isn’t a done deal, would reduce significant uncertainty that has weighed on the 19-nation economy and left it at risk of tipping into recession. The big risk for the euro is if Britain’s Parliament doesn’t approve Mr. Johnson’s Brexit pact, a scenario that would deepen uncertainty across Europe and potentially catalyze a sharp swoon for the single currency.

CAD

Canada’s dollar steadied after matching Thursday’s 11-week high. Tentative hopes of an orderly Brexit in the days ahead buoyed markets and trade-sensitive currencies like Canada’s. Political risk was near the surface for the loonie ahead of Canada’s federal election Monday that’s considered a close call between incumbent Liberal Prime Minister Justin Trudeau and his Conservative challenger Andrew Scheer. A status quo win for Mr. Trudeau could trigger a relief rally for the loonie. Once past the election, the focus should shift back to the economy and data Tuesday on Canadian consumer spending.

GBP

Sterling idled below five-month highs as it nervously treaded water ahead of the big Saturday vote in the U.K. Parliament that will decide the fate of Mr. Johnson’s newly agreed Brexit pact with the EU. The vote is considered a very close call. Passage of the deal would pave the way to an orderly Brexit and potentially add significant octane to sterling’s surge. Failure to pass the deal though would extend sterling-negative uncertainty and deal a massive blow to the prime minister.


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