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Currency Market Analysis

Oct 28, 2019 | Currency Market Analysis

Global Themes

The U.S. dollar squandered one-week highs on caution at the outset of a busy week. The euro and sterling edged up while the Japanese and Canadian currencies were little changed. Expectations are high for the Federal Reserve on Wednesday to cut borrowing rates for the third time this year. The market has largely priced in a 25 basis point rate cut that would reduce the fed funds rate to a range of 1.50% to 1.75%. Meanwhile, a slew of big ticket U.S. data this week will shed light on whether the Fed may need to lower lending rates again before year-end. Sterling firmed after the EU approved a three-month extension of Brexit day to Jan. 31. Britian’s Parliament is expected to vote soon on whether to hold early elections.  Moderation is in the cards for U.S. numbers this week on third quarter growth and October hiring.


A reticent greenback ceded one-week highs ahead of a midweek Fed policy decision and top-tier data that are expected to show more signs of a slowing U.S. economy. U.S. third quarter growth, due Wednesday, is forecast to slow to a 1.7% annual rate from 2% in the second quarter. America’s jobs report Friday is expected to show the pace of hiring slowed to 90,000 in October from an increase of 136,000 in September. Prints that surprise to the downside would suggest an open door to further dollar-negative rate cuts by year-end.


The euro rebounded from one-week lows as the greenback softened at the start of a busy week. The EU approved a third delay of Brexit which kicked the new deadline for the U.K. to depart the bloc to Jan. 31. While the Fed’s midweek policy decision will be critical for the dollar, Europe’s big day this week is Thursday when reports come due on inflation and unemployment. Forecasts call for inflation to remain in a danger zone below 1%.


Will the third Brexit delay be the charm? Sterling ticked higher after the EU Monday approved moving the U.K. move out date to as late as Jan. 31, thereby avoiding a no deal exit on Oct. 31. The move was largely expected with the focus now shifting to the British Parliament to see if lawmakers approve early elections that Prime Minister Boris Johnson has sought. The prospect of several more months of Brexit uncertainty risks reawakening sterling bears who in recent weeks have gone into hibernation.


New week, new highs for Canada. The loonie notched three-month highs ahead central bank Wednesday for North America when both the U.S. and Canada issue policy decisions. America could hand the higher rate baton to Canada with the Fed expected to lower rates and Ottawa all but certain to keep borrowing rates unchanged. A quarter-point rate cut by the Fed would lower America’s key rate to a range of 1.50% to 1.75%. The Bank of Canada is expected to keep its rate parked at 1.75%, where it’s been for the past year.

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