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Currency Market Analysis

Oct 25, 2019 | Currency Market Analysis

Global Themes

Tight ranges prevailed Friday with the limited action favoring the U.S. and Canadian currencies. The main mover was sterling which pared more of its October surge as Brexit uncertainty reached a fever pitch. The euro and yen played it mostly flat. The greenback is benefiting from renewed Brexit uncertainty. After British Prime Minister Boris Johnson this week failed to put his exit deal on a fast-track, he’s now seeking early elections, a strategy that backfired for his predecessor, Theresa May. Meanwhile, the EU has signaled a delay of its own over whether to grant the U.K. more time to solve its Brexit conundrum. A decision from the EU could come early next week. While firmer, gains for the U.S. currency were capped by high expectations for the Fed to deliver a third dollar-dampening interest rate cut next week.

GBP

Sterling pared more of its October onslaught as Brexit uncertainty ratcheted higher. The road out of the EU seemingly grew longer and more winding and possibly leading to snap elections before year-end. Elections are notorious for stoking currency-negative uncertainty, something that Britain is already saddled with. So far the pound’s descent from multimonth highs has been orderly on the notion that a no-deal option is a remote possibility. Still, markets may be underestimating a disorderly Brexit which if it should come to fruition could spell significant pound weakness.

EUR

The euro treaded water above one-week lows after Germany’s influential Ifo index of business confidence steadied, albeit close to seven-year lows. The key survey steadied at 94.6 in October, compared to forecasts of more weakness. The data offered tentative hope that the slowdown in the German economy may be close to bottoming. The euro is on track for a weekly decline, weakness catalyzed by the ECB keeping an open mind and door about using stronger stimulus to resuscitate its sagging economy.

CAD

Canada’s dollar outperformed the otherwise firmer greenback Friday. USDCAD hit three-month lows this week as currency players looked ahead to next week when the Bank of Canada and U.S. central bank render policy decisions on the same day, Oct. 30. No change to Canada’s 1.75% benchmark rate is expected, while the Fed is expected to lower its base rate to a range between 1.50% and 1.75%, a move that would result in a loonie-positive interest rate advantage for Canada.


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