Currency Market Analysis

Jun 04, 2015 | Currency Market Analysis

Global Themes

America’s currency weakened further early Thursday, hitting fresh multiweek lows against the euro and a broad basket of major currencies. The dollar has struggled this week as global economic data have pointed to progress in Europe while U.S. numbers have raised questions about the shape of the world’s biggest economy. On the right side of the Atlantic, inflation has returned and unemployment is down. With Europe’s economy seemingly headed in the right direction, area bond yields have shot higher, which has improved the euro’s appeal. Moreover, markets remain cautiously hopeful that Greece would avoid financial catastrophe and agree to a bailout deal with creditors. On the left side of the Atlantic, meanwhile, the U.S. economy has taken a few steps forward only to take a few back. America’s uneven recovery has reinforced expectations the Federal Reserve wouldn’t rush to raise interest rates which has hampered the dollar’s performance. Over the balance of the week though America’s bright spot job market will be in focus so good news today on jobless claims and employment tomorrow could rejuvenate the dollar.


The dollar’s general underperformance helped sterling recover from its lowest level in nearly a month. As expected, the Bank of England stood pat on policy and left its main lending rate at a record low of 0.50%. This week’s meeting minutes will be published on June 17, an already critical day for markets with the Fed due to announce a policy decision that day. The pound remains a nickel cheaper than mid-May levels which it had soared to six-month highs.


A forgettable night for Australia’s economy weighed on the Aussie dollar which tumbled from its loftiest level in more than a week. A pair of worrisome readings on the Down Under economy revived expectations area interest rates may have further room to fall. Retail spending unexpectedly flat lined in April with a zero reading compared to forecasts of a 0.4% gain. And Australia’s trade deficit tripled to a record A$3.89 billion as exports sank 7.4% and imports jumped 5%.


The euro raked in more gains and notched new two-week highs against the dollar, buoyed by the bloc’s improving economy and a surge in area government bond yields that have made the single currency a better looking bet. It also helped that ECB chief Mario Draghi this week didn’t take issue with rising bond yields which can act as headwinds on borrowing and spending and potentially hinder the recovery. Perhaps the most important thing Mr. Draghi said this week that can impact companies’ bottom line is that he expects higher market volatility to stick around. That can potentially augur higher costs for businesses that don’t utilize cash flow protecting products like forwards and options. America’s jobs report Friday wields the potential to kick up already elevated market volatility even higher.


Like the greenback, Canada’s currency has also fallen prey to doubts about the health of the domestic economy. Consequently, the loonie remains close to its most affordable levels for U.S. businesses since mid-April. Slower Canadian business growth is on the cards for a 10 a.m. EDT report day while the nation’s job market Friday is forecast to show a net gain of 10,000 workers.


13 has proven somewhat of a lucky number for the dollar today as weekly jobless claims held below 300,000 for as many weeks. The dollar edged above lows as jobless claims fared better, moving to 276,000 from 284,000, better than forecasts of 279,000. America’s job market has remained a bright spot for the economy, keeping the Fed on course to raise interest rates. Mixed U.S. data of late suggest a closer call to whether Friday’s important jobs report will meet expectations of a gain of 225,000 for May. Also of importance for the buck will be readings on unemployment and wage growth. Positive readings could see the rebound from its slump while any disappointment could put $1.15 in play versus the euro.

Get the daily currency market analysis in your Inbox

Published five days a week, this newsletter provides day-to-day trends and activities affecting the market in easy-to-understand snapshots.