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Currency Market Analysis

Jun 12, 2019 | Currency Market Analysis

Global Themes

The U.S. dollar was mostly flat as gains against the euro were offset by weakness against the yen. The weeklong rally on Wall Street suffered a setback, boosting haven currencies, after remarks from President Trump cast doubt on a U.S.-China trade deal while violent protests in Hong Kong added another layer of uncertainty. Mr. Trump this week acknowledged that he was “holding up the deal,” as he seeks a “great” one with China or no deal “at all.” Political turmoil in Hong Kong, meanwhile, raised questions about its status as a major financial center. The dollar remains pinned near 2 ½ month lows amid markets’ high hopes for the Fed to slashing borrowing rates. A report today on U.S. consumer inflation may offer hints on the timing of a potential move. Canada’s dollar shadowed oil markets lower with crude sliding nearly 3% to below $52.


The dollar zigzagged after weaker than expected inflation galvanized conviction in the Fed cutting interest rates. Headline consumer prices slowed to a 1.8% increase in May, down from a 2% pace in April. Less volatile core inflation cooled by a tick to 2%. Tame inflation is consistent with the prevailing market view of the Fed cutting lending rates from a range of 2.25% to 2.50% by its late July meeting. Moreover, the data added to growing evidence of a slowing U.S. economy. Numbers last week showed markedly slower hiring and softer wage growth and the weakest manufacturing growth in years. 


The euro was subdued in the wake of reports that the ECB may need to loosen policy amid a cloudy outlook for the 19-country economy. The perception that the ECB may be in the same line as the Fed to cut borrowing rates can leave the single currency prone to selling on rallies. Thursday looms potentially large for the euro when key data are due on German inflation and euro zone factory growth. Forecasts call for a third straight decline in the latter.


Canada’s dollar slipped from three-month highs as risk-averse markets and weaker oil weighed it down. Oil tumbled nearly 3% to below $52 amid a broad market decline over trade deal doubts and violent protests in Hong Kong, a major financial hub. Moves to the downside in the loonie are likely to be capped by weakness in the greenback.

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