Global Themes

The U.S. dollar started the week mildly lower after having its three-week winning streak snapped last week. The dollar surrendered broad ground, slipping against its European rivals while it also declined against the Canadian and Aussie dollars. The buck managed a gain against the yen, highlighting positive market sentiment. The dollar powered to highs for the year last week but has lost thrust in recent days as it failed to find a catalyst to sustain its rebound. The trade-weighted dollar index remains in positive territory for the year but has lost ground after U.S. data in recent weeks showed cooler than expected readings of inflation and wage growth which tempered expectations for the Fed to adopt a faster pace of rate hikes. Currencies could see more two-way traffic this week with critical data from the U.S. and Canada on the consumer, along with British unemployment and euro zone inflation.


The loonie firmed Monday but held below three-week highs reached before last week’s local jobs report showed a surprise contraction in April. Canada’s currency benefited from a mildly weaker greenback and oil markets managing a narrow gain just below $71. Gains could be tough to sustain for the Canadian dollar ahead of local data Friday on retail sales and inflation. That’s because weaker jobs data last week suggested it might be too soon yet for the Bank of Canada to raise interest rates from 1.25% later this month.


The euro rose to 10-day highs as the greenback retreated from 2018 peaks. The euro will take its cues this week from an assortment of data on German investor morale and first quarter growth Tuesday, and Wednesday when a survey is forecast to confirm euro zone inflation an at anemic 1.2% annual rate in April. Low inflation is one of the primary drivers that have taken a toll on the single currency as it suggests central bankers could be a year or more away from raising borrowing rates from zero.


Another bout of profit-taking kept the buck below peaks for the year. The dollar has succumbed to profit-taking after data showing still-contained inflation dealt a setback to the notion of the Fed raising rates more than three times this year. The rate debate will ensue this week in U.S. retail sales Tuesday and a host of public speeches from Fed officials. Despite the tailwind from tax cuts, consumer spending is forecast to slow to a 0.3% pace in April, half the rate of March’s 0.6% increase. It might take an upside surprise to help the dollar take renewed aim at its recent 2018 peaks.


Yen inched lower against the otherwise weaker greenback Monday. Elevated U.S. Treasury yields, coupled with broadly buoyant global stocks, weighed on lower-yielding, safer bets like the Japanese currency. The yen could be dealt a fundamental setback this week if Japanese first quarter growth Wednesday should show a mild contraction (-0.2%) that’s forecast after the world’s No. 3 economy grew 1.6% during the fourth quarter.


Sterling climbed toward a psychological ceiling against the dollar, a move largely inspired by the weaker U.S. unit over recent days. Sterling’s fate this week is seen in the hands of U.K. data Tuesday on the job market. How unemployment and wage growth fare will hint at the timeframe for the Bank of England to raise borrowing rates from 0.5%. Odds currently show a less than 50% chance of a rate hike by August after the BOE last week downgraded its outlook for the British economy.

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