Currency Market Analysis

Oct 08, 2015 | Currency Market Analysis

Global Themes

The dollar kept on the defensive with the Federal Reserve in focus today. The dollar lost ground to the euro and slipped to multiweek lows against a currency basket. America’s unit is off to a weak start to the year’s final quarter as tepid readings on the U.S. economy have jeopardized a rate hike in coming months. Minutes from the Fed’s last gathering in mid-September are due out at 2 p.m. ET. Throughout the day, three Fed presidents will take to the mic, remarks that will be scrutinized for dollar-impacting rate hike signals. Dollar bulls have started to grow impatient waiting on the Fed, leaving the dollar at risk of racking up further losses over the coming days and weeks. Sterling suffered after the Bank of England today sounded dovish on the outlook, bolstering views that it could be a year or more away from hiking rates from all-time lows. Oil firmed, helping the loonie keep well above recent lows.


Advantage: Doves, policymakers that favor low rates to boost the economy. That was the takeaway from the Bank of England’s latest update on all things related to U.K. monetary policy, which pulled the pound off a two-week high against the dollar. All but one of the nine U.K. central bankers voted to keep rates at a record low of 0.50%. The bank sketched a tepid outlook for growth and inflation, validating views it could be a year, maybe longer, away from lifting rates above all-time lows.


The euro bled its overnight buoyancy as three days in a row of downbeat data from Germany depicted gathering clouds over the bloc’s biggest economy. In the latest sign that global weakness was squeezing the powerful German economy, the nation’s exports plunged more than 5% in August, the weakest showing since January 2009. Germany has also let loose grim manufacturing data over the past 48 hours. 


The Aussie dollar held near three-week highs against the greenback as the outlook for interest rates at home and in the U.S. brightened in its favor. Australia’s central bank this week offered no clear signal it would lower rates from 2.0%, while a Fed rate hike this year has all but fallen off the table.


One of the best jobless claims readings since the early 1970s helped the dollar edge above two-week lows against a currency basket. Weekly jobless claims improved by 13,000, falling to 263,000, one of the healthiest prints in more than four decades. The data backed views that cooler job growth of late may prove more of a blip than a sign of something more serious, which is dollar-friendly as it doesn’t quash rate hike hopes in the months ahead. The buck’s reaction so far has been muted with Fed speakers and minutes from the last meeting due later in the day.


The loonie held within a penny of the mid-August high it appreciated to Wednesday, supported by healthier news on Canadian housing and firmer oil above $48. Housing starts topped forecasts, rising at an annual rate of 230,700 units in September.

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