Global Themes

A positive start to the week for global equities served as a sell signal for the safer U.S. dollar. The dollar started the week slowly after its trade-weighted valued appreciated 1.4% last week, the most since late 2016. Wall Street is fresh off its worst week in two years. Investor confidence perked up Monday thanks to global stock gains. But the better mood could prove a tentative one with central bank-influencing inflation reports this week from the U.S. and Europe. The greenback was mildly weaker against the euro and yen, and largely kept steady against the U.K. pound and Canadian dollar. While softer, the U.S. currency remained in a higher overall orbit and several cents above recent multiyear lows, a reflection of still-fickle risk sentiment. On the data front, Britain will lead things off with consumer prices Tuesday, followed by the U.S. and Germany Wednesday. 


Canada’s dollar toggled between small gains and losses Monday with USDCAD becoming somewhat of a Wall Street play. Oil prices clawed back some losses with a rise of nearly 2% which pulled crude back above $60. The loonie managed to weather Canada’s jobs report Friday which showed the economy unexpectedly shed 88,000 jobs in January, the most in 9 years, as Wall Street closed a volatile week with a strong, triple-digit gain. USDCAD will take its cues from stock and commodity swings given the light week for Canada’s economy.


The yen fared resiliently Monday despite a better market mood and elevated U.S. Treasury yields, factors that ordinarily weigh on the safer Japanese currency and diminish its appeal. The yen keeping near 5-month highs reached Friday is a sign that markets view the positive start to the week for equities with a fair amount of skepticism. Inflation reports loom from the U.S. and Europe this week. Evidence of higher inflation would tend to support the safer yen, a scenario that could rattle markets and fuel bets on central banks raising rates at a faster pace.


Sterling steadied with upside for now capped by fresh uncertainties over Brexit negotiations. The EU’s top negotiator said last week that a smooth transition after Brexit Day in March 2019 wasn’t a done deal. Any turn for the worse in Brexit negotiations could potentially stand in the way of a U.K. interest rate hike as soon as the spring, a sterling-negative scenario. U.K. inflation Tuesday is forecast to moderate a tick to a still-high 2.9% annual rate in January.


The dollar started the week tepidly as global stocks turned a profit, tempering the safety trade that’s helped propel the U.S. unit to multiweek highs against the euro, sterling and Canadian dollar. U.S. inflation on Wednesday holds the key to the dollar and the outlook for Fed policy. Underlying inflation is forecast to slow a tick to a 1.7% annual rate in January, down from 1.8% in December. A report that helps to allay fears of rising inflation and the Fed moving faster to raise interest rates would bode better for stocks but leave the dollar vulnerable.


The euro firmed after it logged its first down week in eight against the U.S. dollar. The euro is perched 3 cents below recent three-year highs, offering some exchange rate relief for EUR buyers. A tentative bounce in global stocks lent support to the euro and other currencies that tend to outperform when the market mood brightens. The euro this week will take its cues from global stock swings and German inflation data Wednesday that’s forecast to confirm a slower print of 1.6% annually in January, down from 1.7% in December.

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