Currency Market Analysis

Oct 29, 2019 | Currency Market Analysis

Global Themes

The U.S. dollar was broadly buoyant Tuesday while the U.K. pound erased some of its overnight losses. The U.S. currency edged up against the euro, held near three-month highs against the yen, and steadied around three-month lows against the Canadian dollar. The buck is finding support from the perception that the Federal Reserve may be near the end of a mini interest rate cutting cycle. The Fed starts a two-day meeting today that’s expected to conclude Wednesday with the announcement of a third straight rate cut. But the generally solid shape of the U.S. economy, coupled with the S&P stock index climbing to fresh all-time highs, has led some to rethink expectations of further rate cuts in the months ahead. Sterling pared overnight losses as Britain appeared on track to hold early elections in a bid to break the Brexit stalemate. 

EUR

The euro neared multiweek lows against a buoyant greenback. The market has largely conceded a Fed rate cut this week while it’s rethinking expectations of more moves in the months ahead. While U.S. data has been mixed, the numbers are not consistent with a looming recession. Moreover, the S&P index rising to new historic highs comes with an air of optimism about the U.S. economy. Meanwhile, data from the euro zone Thursday may paint another fragile picture of the economy. Numbers are due on inflation, third quarter growth and unemployment.

GBP

Sterling fell overnight before paring its losses as reports suggested Britain could hold Brexit-resolving elections in December. The removal of the risk of a no-deal Brexit over the balance of the year and the potential for early elections to give Boris Johnson’s Conservatives a majority in Parliament have put a floor under the pound. Britain could vote as soon as today to hold elections. A vote Monday on an election didn’t win the two-thirds majority in Parliament Monday. The next vote would only need a simple majority in the 650-seat Parliament.

CAD

Canada’s dollar was camped near its highest in more than three months on the eve of twin central bank decisions in the U.S. and Canada. Lower oil just above $55 weighed on the commodity-sensitive Canadian currency. A resilient Canadian economy and expectations for U.S. interest rates to fall and Canada’s to hold steady continue to underpin the loonie. USDCAD’s coming prospects may hinge on the tone of central bankers’ statements. More neutral guidance from both central banks would likely keep the pair confined to recent ranges.


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