Currency Market Analysis

Oct 07, 2015 | Currency Market Analysis

Global Themes

Rival currencies continued to creep ahead of the U.S. dollar which has struggled of late following a batch of subpar news on the world’s biggest economy. America’s MVP job market lost a step over prior months, putting in jeopardy the Federal Reserve’s tentative plan to boost interest rates before the end of the year. Other areas of the economy, including manufacturing and trade, have also shown the ill effects of sluggish global growth. Receding expectations for a Fed rate hike leave the dollar prone to a persistent slump over the short run. However, expectations the Fed would be the first among its major counterparts to lift rates should help slow the dollar’s descent. The yen rose after Japan’s central bank kept its limited monetary powder dry. Better performing global stocks and a Fed rate seen as fading from view buoyed the Aussie, kiwi and Canadian dollars. Sterling notched a two-week peak.


The euro struggled to keep ahead of the dollar following more sobering news on Europe’s biggest economy. German industrial production plunged 1.2 percent in August for the biggest decline in a year. The data followed similarly downbeat news Tuesday on German factory orders. The data offered evidence of how China’s slowdown has weighed on Europe, which keeps pressure on the ECB to ease policy, a negative for the euro.


The yen caught a bounce after the Bank of Japan left policy unchanged and its governor didn’t voice any fresh concern over the shape of the world’s No. 3 economy, even though it’s teetering on the brink of recession. The fragile shape of the Japanese economy has many betting on action in the months ahead, possibly as soon as the bank’s next announcement on Oct. 30, a dovish outlook that should keep a low ceiling above the yen.


We’re back! Sterling strengthened to two-week highs after Britain’s factory sector bounced back in August. Industrial output jumped 1 percent, above forecast and the first rise in three months. Though encouraging, the data still leave the U.K. economy at risk of a loss of momentum over the third quarter which keeps rate hike aspirations on a distant horizon, weighing on the pound. The Bank of England embarked on its monthly meeting today with a decision that could impact the pound due tomorrow.


The loonie’s five-day – and counting – winning streak that has taken it to mid-August highs was seen at risk after data showed a surprise 3.7 percent plunge in building permits in August. Oil continued to rebound toward $50 which is a boon for the loon.


A case of the hiccups for America’s economy has weighed on the dollar and put at risk the Fed’s first rate hike in nearly a decade before the end of the year. Whether the run of sluggish news on jobs, manufacturing and trade prove to be a blip or the start of something more serious will help shape the dollar’s coming prospects. Next to steer the buck will be jobless claims Thursday, forecast to inch downward, and comments from a series of Fed presidents Thursday and Friday that will be parsed for any telegraphing of when rates would rise.

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