Global Themes

America’s high-flying dollar bled some strength with both markets and Federal Reserve officials seemingly coalescing toward a rate hike next month. The notion of a U.S. rate hike in mid-December being a near certainty has started to see the dollar’s gains dissipate. Minutes from the last Fed meeting came out this week and indicated the central bank ‘could well’ boost its key rate next time around, providing the economy cooperates and dispenses encouraging data on jobs and inflation. Since the Fed minutes came out, the dollar has edged off seven-month peaks against the euro and a currency basket. The dollar’s overall strength amounts to an early holiday gift for U.S. importers who, through the use of our hedging tools, can get a jump on their 2016 exposures by covering them at very affordable levels, and whose longevity isn’t assured. The dollar slipped to one- and two-week lows against the loonie and sterling.

EUR

The euro backpedaled from session highs after minutes from the last ECB meeting were consistent with a bank on the brink of easier action. The ECB called the downgrading of its inflation outlook ‘potentially worrisome.’ The ECB’s next meeting on Dec. 3 increasingly seems like a matter of how forceful the bank acts rather than will it, a dovish stance that leaves the euro exposed to further underperformance in the weeks and months ahead.

GBP

With some hopping off the U.S. dollar bandwagon to take a breather and some profit, sterling managed to weather a downcast set of U.K. data. British consumers turned frugal last month when retail sales fell 0.6 percent, which followed the biggest spending spurge in nearly two years in September. The data, along with subdued news on factory growth, will keep a relatively low ceiling above the pound with the Bank of England expected to lag the Fed in lifting interest rates.

JPY

The yen tiptoed away from three-month lows against the dollar after the Bank of Japan today left its easy, low rate policies in place, as expected. General pressure will linger on the yen on the view its recession-mired economy may require its central bank to come to the rescue sooner or later with yen-weakening, economy-strengthening stimulus.

CAD

The loonie was steady after subpar economic news from north of the border and weak commodities kept stiff headwinds in place. No such rebound for Canadian wholesale trade which unexpectedly fell 0.1 percent in September, underscoring the economy’s fragile footing. Local inflation and retail sales loom Friday.

USD

The dollar’s bullish bias stands to get a fillip in the latest look at the U.S. economy. Weekly jobless claims hit the bull’s-eye, improving 5,000 to 271,000. Moreover, data from the U.S. central bank unexpectedly returned to growth this month with the Philly Fed index rising to plus 2 from below zero the past two months. Over the short run, the dollar’s steady ascension to multimonth highs leaves it vulnerable to dips on profit-taking. But its longer run prospects remain bright with the Fed likely to raise rates in less than a month.