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Currency Market Analysis

Oct 09, 2019 | Currency Market Analysis

Global Themes

The U.S. dollar rose against its Japanese and Swiss rivals and soared to 17-year highs against Sweden but was otherwise subdued amid constructive trade headlines. The euro and sterling gained along with the Canadian dollar. Media reports suggest that China may be receptive to clinching a mini trade deal with the U.S. Trade talks are set to get underway Thursday in Washington. Currencies with close ties to China and global growth jumped on the news, boosting the Aussie and kiwi dollars and emerging markets. But given the on-again, off-again nature of the trade talks, few seem to be holding their breath for a breakthrough, casting doubt on the sustainability of today’s risk-on move. High on today’s agenda is the release of the minutes from the last Fed meeting which, if dovish, could cement a late October rate cut. 


Sterling was little changed Wednesday which kept the U.K. unit near one-month lows. Brexit remains a puzzle without a clear solution. The pound suffered a Brexit blow this week as the latest rhetoric from Europe suggested prospects of a compromise exit deal had all but collapsed. While the world awaits a clear steer on Brexit, U.K. data Thursday on growth, manufacturing and trade will hint at the likelihood of Britain descending into a pound-negative recession. 


Sweden’s krona stabilized but not before it crashed overnight to 17-year lows against the greenback. A dimmer outlook for global growth is bad news for Sweden given its open, trade-reliant economy. Should even a partial trade deal between the U.S. and China again prove elusive it would risk a revisit of 2002 lows for the crown. 


The loonie rose on tentative hopes for progress this week when China comes to Washington for days of trade negotiations. Market sentiment brightened to the benefit of the Canadian dollar on reports that China was amenable to a partial trade deal this week. Also in focus for the loonie is Canada’s jobs report on Friday that’s forecast to show unemployment holding at 5.7%, a few ticks above historic lows. Another solid showing for the labor market would depict a closed door to a rate cut when Canadian central bankers convene later this month.


The euro caught a bounce Wednesday on hopes that a mini trade deal between the U.S. and China may be in sight. Even a partial trade deal between the U.S. and China would alleviate some of the headwinds on Europe’s economy. The euro has also benefited from rising expectations for the Fed to cut interest rates at least one more time before year-end, following mounting signs of a slowing U.S. economy. 

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