Currency Market Analysis

Dec 22, 2015 | Currency Market Analysis

Global Themes

For the most part, the strong U.S. dollar was on holiday in quiet, pre-Christmas trade. The holidays came early and often for the dollar this year as the Federal Reserve made good on its long conditional pledge to raise American lending rates before the end of the year. The trade-weighted dollar notched 12-year highs in March then notched a new one in early December. The Fed’s quarter-point increase in mid-December bolstered the dollar’s bullish underlying bias, while its tentative vow to raise rates further in the new year have the buck poised for outperformance at least in the early stages of 2016. 


Sterling slumped to new eight-month lows against its U.S. rival after data showed deteriorating health in Britain’s public finances. The data followed subpar news last week on wage growth, keeping any hope of a U.K. rate hike on a far, well into 2016, horizon. 


U.S. growth was confirmed at a solid if unspectacular annual rate of 2.0 percent for the third quarter, news that largely met market expectation and had little impact on the dollar. The strong dollar has largely taken holiday and looks poised to keep toward the front of the pack at least in the initial stages of 2016 given the specter of multiple Fed rate increases next year, policies that drastically differ from low to lower rates abroad. 


The euro found a longer leash to the upside after a forward-leaning gauge of German consumer optimism snapped a four-month funk, rising for the month of January to 9.4, a tick above December’s 9.3. The euro has found some late year buoyancy as the European Central Bank’s stronger policies treaded less corrosively on the single currency. The euro has also benefited as many choose to spend the waning days of the year cashing out lucrative bets on the dollar. 


Firmer oil helped put a tentative floor under the loonie and other commodity-correlated currencies like the Aussie and kiwi dollars. Oil stabilized near $36, up about 0.50 percent on the day. Still, bearish underlying sentiment kept the loonie within reach of recent May 2004 lows. 

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