Global Themes

A further slide away from 2018 highs knocked the U.S. dollar to three-week lows versus a broad basket of rivals. Much the dollar’s fragility stems from a resurgent euro which rallied to three-week highs. The U.S. currency was mixed otherwise, holding around recent peaks against the yen and Canadian dollar, though in reach of multiweek lows versus sterling, the Swiss franc and Aussie dollar. The euro remained on a tear after a trio of ECB officials, including the bank’s chief economist, indicated they would mull at their next meeting when to end a key stimulus program. Confidence had cooled in the ECB ending stimulus this year after the bloc’s economy slowed and uncertainties flared over politics and trade. The ECB next meets on June 14. The U.S. dollar, meanwhile, appears in search of a catalyst to sustain its rally to 2018 peaks, putting heightened focus on next week’s Fed meeting.

GBP

Sterling steadied below two-week highs against the U.S. dollar. The pound bounced this week thanks in large part to recent numbers suggesting the U.K. economy was on the mend after a weak start to the year. The fastest services growth in months bolstered the argument for the Bank of England to raise interest rates from 0.50% this year. While growth fears have eased, uncertainty related to Brexit remains elevated, capping sterling upside.

CAD

Canada’s dollar played it mostly steady on the eve of a G7 summit hosted by Canada. The loonie has been pitted in a tug of war of late over U.S.-Canada trade uncertainty and supportive trade data that helped to strengthen the case for the Bank of Canada to raise interest rates as soon as July. The loonie initially rebounded from March lows amid reports – that were later dismissed by U.S. officials – that the Trump administration was considering exempting Canada from trade tariffs. Canada’s jobs report is also on the Friday agenda. Solid news showing faster hiring and low unemployment could cement a rate hike and buoyed the loonie. 

USD

The dollar kept in the red despite more good news for America’s job market. Weekly jobless claims fell by 1,000 to a low 222,000 – a number consistent with ongoing strength in the labor market. The dollar’s inability so far to ride its rally through key levels has prompted many to take some chips off the table. The dollar has also sputtered as the euro pops on expectations the ECB could be closer to unwinding stimulus. Dollar bulls could be keeping their powder dry until next week when the Fed is widely expected to raise interest rates by 25 basis points to a range of 1.75% to 2.00%. The Fed’s new forecasts for rate hikes this year will be critical for the buck. A status quo tally of three rate increases this year would risk disappointing dollar bulls, who in turn could push the dollar lower.

EUR

The euro rallied to three-week highs as markets erred on the hawkish side ahead of next week’s ECB meeting. The market is suddenly pricing in the possibility of the ECB on June 14 telegraphing a major announcement on its €30 billion a month bond buying program aimed at holding down interest rates to spur faster borrowing, spending and growth. A trio of ECB officials this week indicated that the central bank would discuss the future of its stimulus program. Confidence in the ECB ending stimulus this year had cooled due to uncertainties related to slower growth, low inflation and political and trade risk. A sense those factors haven’t served as a major setback to the ECB’s plans to roll back stimulus has spurred buying of the euro which had fallen more than 7% since mid-April to 10-month lows last week. The euro would be at risk of a renewed slide if the ECB only discusses and doesn’t announce a firm stop for stimulus.

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