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Currency Market Analysis

Oct 10, 2019 | Currency Market Analysis

Global Themes

America’s buck emerged weaker from a volatile overnight session. The dollar sank broadly, hitting three-week lows against the euro, while it also suffered losses against trade-sensitive currencies like the commodity bloc from Canada, Australia and New Zealand. Trade talks resume today in Washington between the U.S. and China. Reports indicated that both sides could agree to a currency pact in lieu of the U.S. slapping another round of tariffs on Chinese goods next week. A currency agreement would likely be aimed at reining in dollar strength and boosting China’s currency in a bid to narrow America’s gaping trade deficit. Heading into the talks, hopes for progress were low and come at a time when President Trump may be more inclined to secure a win on the trade front to dim the spotlight on political risk such as the impeachment inquiry.


Canada’s dollar emerged stronger from a volatile overnight that saw the loonie slip to one-week lows. By daybreak the loonie had rebounded as oil rose and the greenback lost altitude ahead of trade talks today between U.S. and Chinese officials. Better than expected news today on new housing prices in Canada helped the northern dollar pad its gains. Next up: Canada’s September jobs report Friday that’s forecast to show unemployment holding at 5.7%, not far from record lows.  


The U.K. pound rose above one-month lows as it largely capitalized on the greenback’s retreat. The pound’s prospects hinge on Brexit with Britain up against a ticking clock to secure a compromise exit deal ahead of its scheduled departure from the EU in three weeks. A trio of U.K. data Thursday largely underwhelmed, depicting the British economy lurking toward recession. 


The euro soared to three-week highs on tentative hopes that U.S.-China trade talks today could exceed markets’ low expectations. Some perceive the U.S.-China trade talks as a litmus test for negotiations between Washington and Europe. Tentative trade optimism also reopened dollar wounds stemming from a slowing U.S. economy and rising expectations for the Fed to remain on a preemptive path of cutting lending rates.


A 0.5% slide in the trade-weighted dollar index knocked it to one-week lows. The buck came under pressure ahead of trade talks today between the U.S. and China. Reports suggested that the talks just might exceed markets’ low expectations for progress. Something to cheer about on the trade front would bode better for global growth at the expense of haven assets such as the greenback, yen and Swiss franc. The dollar’s trade-related descent tore open wounds stemming from signs of a U.S. slowing economy and rising expectations for the Fed to cut rates. U.S. data was mixed and largely offset. Core consumer prices steadied at a 2.4% annual rate in September while weekly jobless claims proved better than forecast, coming in at 210,000 versus expectations of 219,000.

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