Global Themes

A hazy outlook for U.S. interest rates and persistent concerns about the shape of the world economy continued to weigh on America’s currency which nursed broad losses Friday. The dollar neared two-month lows against the euro and a currency basket as confidence ebbed in the Federal Reserve raising interest rates anytime soon. The blow to the dollar came from dovish Fed minutes this week that stopped short of hinting at an imminent rate hike. The minutes played up global uncertainty, suggesting September may be premature yet for the first rate hike in years which left many dollar bulls disenchanted. Market morale continued to grind downward today, buoying havens like the yen and Swiss franc, in the wake of fresh news of weakness in China whose factory sector contracted at the fastest rate in 6 years. Canada’s loonie will take cues today from local data on the consumer.

USD

The dollar suffered a setback after Fed minutes struck a cautious note that suggested the economy might still be months away from being well enough for bankers to raise rates. Receding expectations for the Fed to raise rates at its coming meeting on Sept. 16-17 wields the potential to weaken the dollar further over the short run. However, a door seen as still ajar to a move next month should help limit losses in the dollar. The Fed has one more monthly jobs report to peruse before its next decision so good news then (Sept. 4) could clinch a rate hike and spark a fresh upturn in the dollar.

EUR

Short term sentiment has brightened for the euro with the single currency near two-month peaks against the dollar. The euro has benefited from a sense the Fed might pass on raising rates in September while global uncertainty has shifted the euro-funded carry trade on higher-yielding currencies, like China’s yuan, into reverse. Notice, though, how the euro’s rise isn’t fundamentally based? That suggests its recent outperform isn’t built to last for long. Moreover, political uncertainty looms after Greece’s premier stepped down this week and announced the fifth national election in six years.

GBP

Britain’s pound clocked a seven-week peak against the dollar, benefiting from diminished expectations for the Fed to raise rates this year. The pound’s pop also stems from a surprise rise in underlying inflation in Britain which rose at the fastest rate in five months. The pickup in prices suggested U.K. rates could rise as soon as the first quarter of next year.

CAD

Better news on Canada’s economy had the loonie in line to eke out a gain on the week against its U.S. counterpart. Headline consumer inflation rose 1.3 percent annually in July from a 1.0 percent pace in June. Growth in retail sales slowed to a 0.6 percent rise in June from a 0.9 percent gain in May, but topped forecasts of a 0.2 percent rise. Upside should remain a challenge for the loonie with oil down on the day, and close to falling below $40.