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Currency Market Analysis

Oct 30, 2019 | Currency Market Analysis

Global Themes

The U.S. dollar and its top peers played it steady ahead of central bank decisions today in the U.S. and Canada. The buck was little changed against the euro, yen, sterling and Canada. Another U.S. rate cut is expected today, which would be the Fed’s third in as many meetings. America’s central bank is all but certain to lower its key rate by 25 basis points to a range of 1.50% to 1.75%. Key for the dollar’s coming prospects will be the tone of the Fed’s statement. Some anticipate a so-called hawkish rate cut where the Fed lowers rates but also lowers expectations of further easing. The case for the Fed to pause its mini easing cycle gained traction in today’s report on U.S. third quarter growth whose 1.9% rate topped forecasts and was a mere tick below the second quarter’s 2% pace. No change to Canadian interest rates is expected. 


The euro mirrored a batch of weaker data from Europe. Euro zone economic sentiment deteriorated more than expected to 100.8 in October, the lowest level since January 2015. German inflation cooled by a tick to an undesirably low annual rate of 1.1% in October. The data added to expectations of the German economy, Europe’s biggest, tipping into recession.  


Sterling staged a modest relief rally after the U.K. approved early elections as a way to try to break the Brexit deadlock. Britons will head to the polls in mid-December. Boris Johnson’s Conservatives are off to a good start, according to opinion polls. However, the polls should be taken with a grain of salt after they inaccurately predicted that ‘remain’ would win the Brexit referendum in 2016.


The U.S. dollar steadied and largely shrugged off better than expected data with everyone waiting on the Fed to render its 2 p.m. ET interest-rate verdict. Ahead of the Fed’s decision, U.S. third quarter growth topped forecasts with a 1.9% increase which was better than forecasts of 1.6% but a shade below the second quarter’s 2% rate. ADP said that private employers added a forecast-beating 125,000 jobs in October. The Fed is expected to deliver its third rate cut in four months. The Fed’s statement is likely to walk the middle ground of not promising any more rate cuts, with the economy holding up reasonably well, while not shutting the door to easier action, given persistent uncertainties. Friday’s jobs report might offer the better signal on coming Fed policy.


Canada’s dollar fell to more than one-week lows after the Bank of Canada left borrowing rates parked at 1.75% but emphasized how global headwinds would “increasingly test” the durability of its resilient economy. The BOC largely downplayed economic resilience and instead played up threats to growth from persistent trade wars and global uncertainties. The central bank’s growth forecasts were mixed and largely offset. The BOC downgraded its forecast for third quarter growth to 1.3% from 1.5%. But the central bank upgraded its outlook for 2019 growth to 1.5% from 1.3%. The cautious tone of the central bank’s statement was consistent with the next move being lower for area interest rates.

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