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Currency Market Analysis

Oct 24, 2019 | Currency Market Analysis

Global Themes

America’s dollar firmed on central bank Thursday. The euro ticked lower after the ECB kept its powder dry and the door wide open to bolder stimulus measures. Sterling, on a Brexit vigil, fell while softer oil slowed the loonie’s rise. Ahead of Mario Draghi’s final post-meeting press conference as the chief of the ECB, the central bank left interest rates unchanged. Mr. Draghi’s presser begins shortly and will be parsed for signals on prospects of a growth boom eventually taking shape. Overnight data painted a still anemic picture of European growth, suggesting the euro’s recent rebound wasn’t fundamentally driven. As expected, Sweden and Norway left their lending rates unchanged at -0.25% and 1.50%, respectively. Moderation is in the cards for a report today on U.S. new home sales.


A lower U.K. pound held below five-month peaks. Sterling is awaiting fresh Brexit developments with everything on hold after votes this week in Parliament said ‘no’ to a rapid timetable to enact laws to leave the EU next week. The pound continues to retain resilience on the notion that a disorderly no-deal Brexit is the least likely outcome. Other outcomes include an eventual deal, early elections or holding a second referendum on Brexit.


The euro fluctuated after the ECB left policy unchanged and data suggested the euro zone economy remained in a not so good place. Departing ECB President Mario Draghi offered a mixed assessment of the bloc’s economy and held out hope of an eventual recovery taking hold. Still, Mr. Draghi left the door wide open for his successor, Christine Lagarde, to deploy stronger stimulus if need be to lift the 19-nation economy out of its rut. Data, meanwhile, showed that euro zone and German factory growth trailed forecasts and stuck in reverse. 


Canada clocked new three-month highs ahead of next week when both the U.S. and Canadian central banks hold policy meetings on the same day: Oct. 30. Solid momentum behind the Canadian economy, led by a strong job market, all but guarantees the Bank of Canada will keep its main rate steady at 1.75%. The Fed, by contrast, is expected to cut borrowing rates for the third time this year to help sustain a recovery under threat from trade wars and a weakening world economy. A 25 basis point rate cut by the Fed would reduce the Fed’s benchmark lending rate to a range of 1.50% to 1.75% which could steer investment north of the border where yields would be juicer. 


A key vulnerability for the dollar these days is signs of a slowing U.S. economy. That’s what was evident today in data on durable goods whose 1.1% decline in September was bigger than expected. What’s more, the subcomponent on business spending fell for the second straight month. The concern is that mounting economic weakness will reach the consumer, America’s chief growth engine. Today’s data all but assures the Fed will cut rates next week and possibility keep the door ajar to easier, dollar-negative action.

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