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Currency Market Analysis

Jun 18, 2019 | Currency Market Analysis

Global Themes

The euro led major currencies lower against the greenback after the head of the ECB hinted at another round of stimulus. Dovish remarks from Mario Draghi, the president of the ECB, knocked the euro to two-week lows and sent global bond yields tumbling. Lower U.S. Treasury yields, with the 10-year barely above 2%, weighed on the U.S. dollar against the yen. But the otherwise stronger U.S. unit rose to two-week highs against the Canadian dollar and to January peaks against sterling. Mr. Draghi said that if area inflation doesn’t pickup, the central bank would cut rates or restart its QE bond buying program. The ECB stole the show from the Fed which renders a policy decision tomorrow. Moreover, the ECB’s strong stimulus signal reduced a headwind on the dollar from growing expectations for the Fed to cut lending rates this year.

CAD

Canada’s dollar pared losses that overnight knocked it to two-week lows against its U.S. rival. Oil markets firmed with crude reclaiming $52. The U.S. dollar received a shot in the arm via dovish remarks from the ECB chief who dropped strong hints of another round of economy-boosting, euro-weakening stimulus in the event that higher inflation fails to materialize.

GBP

Sterling slipped to five-month lows as today marks the second round of Britain’s contest to choose a new Conservative leader who will become the country’s next prime minister. The downside risk for the pound would be if Boris Johnson wins another round which would move him a step closer to succeeding Theresa May as the nation’s leader. But a strong showing by someone else perceived as less likely to pursue a disorderly, no deal exit from the EU could spark a knee-jerk move higher in the pound.

USD

A made in Europe rally lifted the trade-weighted U.S. dollar index to two-week peaks. There’s a Fed meeting this week but so far it has the trappings of an ECB gathering. The euro slid to fresh multiweek lows, a decline that moved it less than a penny away from two-year lows reached in May. The dollar capitalized on dovish remarks from the ECB president that overwhelmed expectations. While stronger, the buck may not be out of the woods yet, especially if the Fed Wednesday matches the ECB’s dovish rhetoric or if the Fed should surprise with a rate cut this week, something the market doesn’t expect until July.  

EUR

The euro tumbled to two-week lows after Mario Draghi let the doves loose. Mr. Draghi said the ECB stood ready to ramp up stimulus if area inflation fails to rise toward its near 2% goal. The ECB president hinted at all of the central bank’s policy tools at its disposal such as rate cuts and QE bond buying. The forceful signal of stimulus potentially lurking around the bend leaves EURUSD at renewed risk of revisiting two-year lows hit last month. Throwing salt on the euro’s wounds was news of the weakest German investor confidence in seven months in June.


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