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Currency Market Analysis

Aug 20, 2019 | Currency Market Analysis

Global Themes

GBP

Sterling dangled within a cent of 2 ½ year lows against the greenback, weighed down by the gravitational forces of Brexit uncertainty. Once again, Prime Minister Boris Johnson sounded resolute about Britain exiting the EU on Oct. 31 – deal or no deal to cushion the U.K. economy. It also didn’t help the pound today that a gauge of British factory growth, while better than expected, remained in contraction mood since the spring. Like Germany, Britain’s economy is teetering on recession, a weak backdrop that can leave sterling biased lower.

USD

The U.S. dollar was mostly steady in lackluster late summer trade. The buck hovered around elevated levels, not far from multiyear peaks clocked in early August. Treasury yields, while lower today, have kept above multiyear lows as markets show tentative signs of stabilizing after last week’s rout. The euro, weighed down by German and Italian headwinds, was less than a penny above multiyear lows. The yen and swissie firmed, reflecting ongoing concerns about weakening global growth. Canada’s dollar remained on the defensive after succumbing to broad based greenback strength. Currencies today are likely to take their cues from stock and bond markets ahead of Fed minutes Wednesday and a highly anticipated speech Friday by Fed Chairman Jerome Powell.

EUR

The euro favored its back foot, pressured by economic weakness in Germany and political instability in Italy. Growing fears that Germany, Europe’s biggest economy, is headed for recession have cemented expectations for forceful action from the ECB next month. Meanwhile, Italy’s coalition government appeared on life support ahead of a speech today by Giuseppe Conte, the country’s prime minister. Mounting economic and political risk in the euro zone have added to the downside risks facing the single currency, leaving it vulnerable to slumping to new 2017 lows.

CAD

Canada’s dollar inched closer to recent lows against the greenback on the perception that local data this week might add to the argument for the nation’s central bank to lower interest rates from 1.75%. Inflation tomorrow is forecast to slow to a 1.7% annual rate in July from 2% in June, the Bank of Canada’s bullseye. Retail spending looms Friday with forecasts calling for weakness for the third month in a row. The market assigns about a 30% chance of the Bank of Canada cutting rates at its coming meeting on Sept. 4, while a move is nearly fully priced for its Oct. 30 gathering. 


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