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Currency Market Analysis

Dec 14, 2018 | Currency Market Analysis

Global Themes

Safe haven seekers gobbled up the greenback Friday, powering it to one-month peaks against a broad basket of currencies. While flat against the yen, another popular refuge when investor optimism dims, the U.S. currency posted solid gains against the euro, sterling and Canadian dollar and notched its strongest in six weeks against the Aussie dollar. The global economic glass appears half-empty after numbers from China and the euro zone disappointed. Moreover, few signs of progress on Brexit kept alive the risk of an economy-throttling hard exit from the bloc. The dollar’s gains appear less fundamentally fueled and more safe haven based, leaving them at risk should U.S. data today on retail sales undershoot forecasts. The Federal Reserve’s final meeting of the year looms next week, a critical event that could jolt major currencies.


Canada’s buck weakened Friday after oil surrendered some of its Thursday rally when it closed above $52. Global risk factors are in focus today, weighing on stocks and commodities, a backdrop that leaves Canada’s commodity-driven currency vulnerable. Chinese consumers turned cautious and spent less last month while business surveys from Europe underwhelmed. Wednesday looms large for USDCAD next week when the Fed issues its final policy decision of the year, which is expected to yield the year’s fourth rate hike, and Canada releases central bank-impacting inflation data.


Sterling tumbled 1% Friday while its 2-cent slide over the week had it on track for its worst in nearly two months. The latest headlines suggest that Theresa May is unlikely to win any deal sweeteners from her EU counterparts which is doing nothing to allay fears that Britain may be headed from an economy-throttling exit from the bloc in late March. While Mrs. May survived a no confidence vote this week, the fact that more than a third of her Conservative Party voiced no confidence casts doubt on her Brexit deal winning parliamentary approval.


The euro fell after bearish data collided with a dovish message from the ECB this week. Business surveys from Germany and France, the bloc’s Nos. 1 and 2 economies, respectively, fell short of forecasts. The ECB this week left borrowing rates unchanged and marked down its outlook for growth and inflation for next year. Doubts are growing about whether the 19-nation economy will be healthy enough for the ECB to raise rates at all in 2019.  


What started as one dimensional gains turned in to multiple for the greenback. Already buoyed by haven buying from global concerns, the dollar received a fundamental lift after data on the economy-driving consumer impressed, allaying concerns about moderating growth. Retail sales rose by 0.2% in November and came with a healthy upgrade of more than 1% in October. Moreover, the core reading which subtracts volatile components jumped by nearly 1% – a bullish sign for fourth quarter growth since consumers do the economy’s heaviest lifting.

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