Global Themes

The U.S. dollar was modestly higher as caution reigned as a meeting of G20 nations got underway. The dollar was marginally higher against the yen, while it was up at least a quarter percent against the euro and sterling and gained about a half percent against emerging markets. All eyes are fixated on the G20 meeting in Argentina where the U.S. and Chinese presidents are expected to hold critical trade talks. It’s anything but certain whether the talks will yield a breakthrough but if they do, riskier assets like stocks and emerging markets would likely rally in relief. In Europe, the drumbeat of dour data grew louder, weighing on the euro. Euro zone data on unemployment and core inflation underwhelmed. Ahead of the Bank of Canada’s final meeting of the year next week, north of the border numbers are forecast to show slower growth during the third quarter.

USD

The U.S. dollar ticked higher as skittish investors sought safety ahead of a G20 meeting where the U.S. and Chinese presidents will attempt to make progress on their trade feud that has unsettled markets and put a headwind on global growth. Mild dollar appreciation help it pare losses that ensued after the Fed struck a less hawkish and more cautious outlook for monetary policy next year. The Fed is widely expected to raise rates in December, but expectations for 2019 rate increases have receded after central bank developments this week suggested borrowing costs were near neutral, the point at which officials could adopt a wait and see approach to policy.

EUR

For a second straight day, the euro touched the top of its range – only to do a U-turn after data showed mounting evidence of a moderating 19-country economy. Expectations of an eventually ECB rate hike got booted further into the future after euro zone data showed core inflation unexpectedly slowed to 1% from 1.1% – a wrong turn from the ECB’s just below 2% goal – and unemployment stayed at 8.1% versus forecasts of 8%. The recent rout in oil bodes inauspiciously for inflation which will raise questions about whether the ECB will raise rates next year.

GBP

The U.K. pound hovered a penny above its 2018 low with sentiment sullied by the uncertain outlook for the prime minister’s Brexit deal surviving a crucial vote in Parliament next month. The pound also favored its back foot after the head of the Bank of England warned of dire economic consequences under a worst-case scenario in which Britain leaves the EU in March without a ratified deal on its future trading relationship. Sterling is likely to remain on a choppy path in the run-up to the parliamentary vote on Theresa May’s Brexit deal on Dec. 11.

CAD

Canada’s dollar weakened toward five-month lows after north of the border data confirmed slower growth last quarter. Canada’s economy slowed to a 2% annual rate during the third quarter, down from a 2.9% pace in the second quarter which was the fastest in a year. Monthly data showed a mild contraction in September, evidence that momentum behind the economy sagged ahead of the fourth quarter. The data, while largely in line with forecasts, cemented expectations of no change to the Bank of Canada’s 1.75% interest rate when it meets on Dec. 5.

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