Global Themes

Except for a slide against the U.K. pound, the U.S. dollar extended a nascent winning streak to reach its strongest in two weeks. Sterling stole the show, though, after the Bank of England left borrow rates unchanged but dropped hints of a coming rate hike if Brexit negotiations don’t knock the U.K. economy off track. Against its other peers, the greenback extended a multiday rally, benefiting from still-skittish sentiment in the wake of the surge in stock market volatility. The U.S. currency also found support from elevated Treasury yields and improved conviction in the Federal Reserve boosting interest rates this year. The euro plunged against the pound and hit two-week lows against the dollar. Canada’s dollar was little changed after hitting late December lows. Canada releases important jobs data Friday that could potentially spark a major move in USDCAD.


The improved dollar surrendered some gains as a cautious political backdrop in Washington checked its rise and left it vulnerable to profit-taking. Lawmakers face an imminent deadline to fund the government or risk another shutdown. U.S. data was supportive of a stronger dollar and the Fed raising rates next month as weekly jobless claims unexpectedly improved, falling by 9,000 to 221,000 which was one of the healthiest prints in 45 years.


The kiwi dollar plunged to 4-week lows after the Reserve Bank of New Zealand left borrowing rates unchanged at 1.75% and telegraphed a dimmer near-term outlook for the economy that bolstered the view that area policy would remain low for longer. The recent flare up in global market instability has also been a negative for the kiwi as its highest in the developed world yield leaves it vulnerable when investors shed risk and seek cover in havens like the dollar and yen. 


A weaker euro Thursday hit its lowest against the dollar in two weeks. Against the BOE-buoyed pound, the single currency fared even worse, as it slid more than a percent, putting it on track for its worst day in nearly 5 months. The recent spike in global market volatility has tapped a brake on the high-flying euro as risk-wary players seek safety in the dollar. Underlying sentiment remains bullish for the euro because of the bloc’s booming fundamental backdrop.


Sterling kissed mid-January lows against the dollar goodbye after the Bank of England served notice to markets that rates could rise somewhat sooner and more frequently than previously thought. As expected, the BOE’s rate-setting Monetary Policy Committee left its base borrowing rate unchanged at 0.5%. The bank’s new forecasts sketched a brighter outlook for growth which caused markets to pull forward rate hike expectations to May or June from previous forecasts of a late year move. While hawkish, Brexit negotiations hold perhaps the biggest key to the policy outlook. Any turn for the worse in talks could delay a rate hike and leave the pound vulnerable. 


Canada’s dollar stabilized after an overnight dip to late December lows. The loonie has fallen prey to falling oil markets with crude sinking below $62, a one-month low. A nascent rebound in the U.S. currency also acted as a headwind. The loonie’s reversal from 4-month peaks could hinge on Canada’s jobs report Friday. Forecasts call for slower hiring and unemployment to inch above 5.7%, the lowest in 4 decades. Canada’s job market has been on a roll that if sustained could catalyze a renewed slide in USDCAD as the Bank of Canada bases its rate hike decisions on data.

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