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Currency Market Analysis

Jun 14, 2019 | Currency Market Analysis

Global Themes

Investors played it safe Friday as geopolitical tensions flared in the Middle East. As a result, the greenback and yen outperformed with the former at one-week peaks and pacing its best week in three. Modest gains lifted the U.S. dollar to one-, two- and three-week peaks against the euro, sterling and Aussie dollar, respectively. Canada’s dollar was little changed, underpinned by oil holding above recent lows. Mideast tensions continued to run high a day after tanker attacks in the Gulf of Oman. The dollar enjoyed safe haven flows and benefited from position squaring ahead of next week’s Fed meeting. The buck’s gain could be tested by a report today on U.S. retail sales. Faster spending is expected which if realized could lead the market to reconsider expectations of aggressively lower U.S. interest rates this year.


Canada’s dollar slipped to one-week lows as the stronger greenback overshadowed firmer oil. Oil’s pop above five-month lows lent support to Canada’s commodity-influenced currency. Still, USDCAD jumped after solid U.S. spending data tempered expectations of aggressive policy easing by the Fed. USDCAD has kept to a range and is days removed from multimonth lows on the perception that U.S. interest rates may have more room to the downside than Canada.  


Sterling descended to two-week lows after Boris Johnson won the first round of the contest to become Britain’s next prime minister. More rounds are set for the coming days until the candidates whittle down from now seven to two in the coming weeks. If he wins, Mr. Johnson has vowed to pull Britain out of the EU with or without a deal. The market fears that if the latter scenario should happen it would heighten the risk of Britain tipping into recession.


The dollar pushed higher after good news on the U.S. consumer cemented expectations for the Fed to leave interest rates unchanged next week. Retail sales were up by a sturdy 0.5% in May which printed close to forecast. Following an upward revision to April, consumer spending has increased for three straight months. The data flew in the face of markets’ high hopes of at least two quarter-point rate cuts by the Fed by year-end. Key for the dollar going forward will be what the Fed hints about the interest rate outlook. A Fed that stops short of decidedly dovish expectations could allow the dollar more room to the upside.


The euro fell to one-week lows, weighed down by lackluster data from the bloc. Data this week showed that factory growth in Europe continued a deteriorating trend with a third straight decline in April. Coupled with receding inflation expectations, it’s dialing up the heat on the ECB to consider stronger stimulus to help the economy ward off a steeper slowdown. 

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