Get Started

Currency Market Analysis

Dec 05, 2018 | Currency Market Analysis

Global Themes

The U.S. dollar steadied above multiweek lows but maintained a defensive bias. The dollar softened against the euro and sterling but firmed against the yen and Canadian dollar. Australia’s dollar took a data-induced plunge below four-month peaks. Trading could be subdued today with U.S. financial markets closed for a day of mourning to honor the passing of America’s 41st president, George H.W. Bush. A sharp slide on Wall Street Tuesday helped the safer dollar stabilize as investors sought cover in less risky bets. However, underlying dollar sentiment has suffered in the wake of a marked decline in U.S. Treasury yields. The inversion in some U.S. yields was particularly troubling for the dollar as it fanned concerns about a slowing U.S. economy. The dollar going forward could have a heightened sensitivity to weaker data. Canada’s dollar moved below two-week peaks on caution ahead of a 10 a.m. ET policy decision today by Bank of Canada.


Sterling rose above fresh lows for the year as markets positioned cautiously ahead of a Dec. 11 vote on the prime minister’s exit deal. The pound made a brief plunge to 17-month lows after Theresa May’s administration was found in contempt of parliament for not fully disclosing key Brexit information to lawmakers. Upside for the pound was limited after data showed that Britain’s economy-driving sector, the services industry, barely grew in November which further raised the stakes for lawmakers to avoid a no deal scenario, one that the country’s central bank has warned could have devastating consequences for growth and the value of the pound.


The dollar steadied but maintained a fragile bias as lower Treasury yields weighed, dulling its appeal and fanning concerns of a moderating U.S. economy. The inversion in some U.S. yields will make the most ardent dollar bulls take notice given that the move has proven a historic harbinger of recession. While use of the ‘R’ word is a bit premature considering America’s sturdy economic backbone, yield inversion is still a development that’s consistent with the economy at risk of losing steam over coming quarters. While the odds of the Fed raising rates this month remain around 80%, expectations have waned for higher rate policy next year. The reduction in U.S. economic optimism puts heightened importance for the dollar on Friday’s U.S. jobs report.


The Aussie dollar plunged from four-month highs after data showed a bigger than expected slowdown in the Down Under economy last quarter. Australia grew at a 0.3% pace during the third quarter which compared to the second quarter’s 0.9% expansion and forecasts of 0.6%. Weaker data underscored the Reserve Bank of Australia’s decision this week to leave its benchmark cash rate at 1.50%, a record low, and validated the view of rates remaining low for longer.


The loonie will look for a catalyst today from the Bank of Canada which is widely expected to leave its main rate unchanged at 1.75% after the nation’s economy slowed last quarter and contracted in September. The focus today will be on the tone of the bank’s statement. Key for the loonie will be whether the BOC plays up expectations of gradual rate hikes or whether it adopts more of a wait and see stance given cooler data and the sharp collapse in oil markets. Another risk event looms this week in the nation’s jobs report Friday. 


The euro moved mostly sideways with markets in somewhat of a holiday mode with Wall Street closed to honor the passing of America’s 41st president. The euro notched two-week highs this week against the dollar as falling U.S. Treasury yields exerted broad based pressure on the greenback. Still, upside for the euro is perceived as limited given mounting evidence of a weakening euro zone economy which is raising an already elevated bar for the European Central Bank to lift borrowing rates from crisis lows.

Get the daily currency market analysis in your Inbox

Published five days a week, this newsletter provides day-to-day trends and activities affecting the market in easy-to-understand snapshots.