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Currency Market Analysis

Oct 15, 2019 | Currency Market Analysis

Global Themes


Upbeat words on prospects of an imminent Brexit deal from the EU’s chief negotiator lifted the pound and overshadowed weaker U.K. jobs data. The EU’s Brexit chief sounded cautiously optimistic about Britain’s chances of clinching a Brexit deal ahead of a late week summit when EU officials could sign off on a pact. While encouraging, a Brexit deal would still require the approval of a divided U.K. Parliament. Sterling could take renewed flight should both Brussels and London sign off on a deal that paves the way to an orderly exit from the bloc on Oct. 31.


America’s greenback Tuesday was mixed but mostly stronger, boosted by a still gloomy outlook for global growth. The buck softened against the yen, sterling and Canada but firmed against the euro. Flickering hopes of an imminent Brexit deal buoyed the U.K. pound. Britain is scrambling to forge a Brexit pact ahead of an EU summit Thursday. Should Britain squeak by with a deal, which would still need U.K. parliamentary approval, such an outcome would risk reviving a rally that last week propelled the pound to three-month peaks. Markets otherwise took their cues from the U.S.-China trade war which rolls on despite officials Friday sketching the contours of a limited agreement. The lack of meaningful trade progress keeps a cloud over global growth and a floor under safe havens like the U.S. and Japanese currencies. 


Weak data from top European economy Germany weighed on the euro and pushed the single currency to five-month lows against sterling. Germany’s ZEW index of investor confidence weakened by three ticks to minus 22.8. While that was better than forecasts of a weaker number (-27) it still pointed toward Europe’s biggest economy descending into recession. The euro zone Wednesday issues final numbers for September that are forecast confirm below 1% inflation, a dangerously low level and supportive of the ECB’s aggressive easing measures.


Canada’s dollar stuck below one-month highs as the stronger greenback and softer oil weighed. USDCAD kept to a range with upside capped by low expectations for Canada to cut interest rates anytime soon. Canadian jobs data last week showed near record low unemployment, a healthy level that can lend a tailwind to consumer spending. The Bank of Canada meets in a little over two weeks (Oct 30) with futures markets showing a more than 90% likelihood of central bankers holding their key rate steady at 1.75%.

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