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Currency Market Analysis

Oct 22, 2019 | Currency Market Analysis

Global Themes

The U.S. dollar eked out a gain Monday, one it carried into Tuesday. The dollar rose modestly but broadly thanks mostly to sterling’s pullback from five-month peaks. The euro and yen edged lower as did Canada’s dollar in the wake of overnight news that Justin Trudeau won another four-year term as prime minister, albeit with a minority government. All eyes, once again, are on London where the U.K. Parliament is expected to vote today on Boris Johnson’s new Brexit deal. Voting on the Withdrawal Agreement Bill is due around 2 p.m. ET, a verdict likely to subject the pound to more volatility. The pound could revisit recent peaks and perhaps push higher if things go Mr. Johnson’s way and put Britain on track to depart the EU on Oct. 31. Canadian consumer data and U.S. numbers on housing will also be important for the North American day. 


Largely in the same boat as sterling, the euro slipped from multimonth highs against the greenback. Prospects of an orderly and on time Brexit would go some way in diminishing downside risks facing the wobbly euro zone economy. The euro is also treading cautiously ahead of important risk events this week in the form of Mario Draghi’s final meeting Thursday of the ECB as its president, and Friday when Germany issues a fresh update of area business confidence with forecasts calling for modest improvement. 


Caution pulled the U.K. pound below five-month peaks. Britain’s Parliament is expected to vote today on Boris Johnson’s Brexit deal. Lawmakers may also vote in the prime minister’s short timetable to exit the EU on Oct. 31. Votes that go Mr. Johnson’s way and pave the way for an orderly exit next week could add fuel to sterling’s rally. But if the Brexit voting fails and leads to prolonged indecision and uncertainty, sterling would be at risk of surrendering more ground. 


Canada’s dollar fell from three-month highs after Justin Trudeau won another four-year term but his Liberal Party lost its majority in Parliament. A surprise fall in Canadian consumer spending also renewed a headwind on the Canadian currency. Retail sales unexpectedly fell by 0.1% in August which wrongfooted forecasts of a 0.4% rise. While disappointing, the data may only have a limited impact on the loonie given that the prior number enjoyed an upward revision and how expectations remain ultra-low for the Bank of Canada to cut lending rates at its coming meeting on Oct. 30.

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