Currency Market Analysis

Dec 18, 2015 | Currency Market Analysis

Global Themes

A mostly steady U.S. dollar Friday was well on track for a solid weekly gain after the Federal Reserve raised its base interest rate for the first time in nine years and left the door open to further rate hikes in the year ahead. Higher rate policies bolster the dollar’s handsomeness and contrast lower rate practices abroad that have cheapened the euro and other top peers. The dollar posted a wide swath of gains this week, reaching eight-month peaks against sterling and its strongest in 11-plus years against the commodity-crushed Canadian dollar.


The yen stormed back from early December lows against the dollar, getting a knee-jerk lift in a modest move by the Bank of Japan (BOJ) to shore up its low flying economy. The BOJ announced Friday it would make more stimulus available for companies that step up hiring and investment. But stopping short of a full blown economy-boosting, currency-weakening stimulus, the yen rallied in relief. The safer Japanese currency also benefited from stock losses on worries over the impact of sliding oil. 


The loonie is at heightened risk of weakening above C$1.40 after local inflation came in under forecast. Inflation rose 1.4 percent in November, marking an improvement from 1.0 percent last time, the basement of the Bank of Canada’s 1-3 percent comfort zone. However, November’s increase fell short of forecasts of 1.5 percent. The loonie has fallen to successive 11-year lows this week, battered by rising U.S. interest rates and falling oil prices. 


A mostly stronger dollar retained the bulk of its Fed-fueled gains, holding near two-week peaks overall and around multimonth and decade-plus highs against its British and Canadian counterparts. The Fed’s first rate increase in nearly ten years and its flagging of further hikes in 2016 help ice another winning year for the greenback.

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