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Currency Market Analysis

Nov 01, 2019 | Currency Market Analysis

Global Themes

The U.S. dollar weakened ahead of important data today on the U.S. economy. The buck softened against the euro and sterling and fell to three- and seven-week lows against the yen and New Zealand dollar, respectively. Canada’s dollar steadied near multiweek lows. Confidence is receding in the strength of the world’s biggest economy after core inflation slowed, consumer confidence dimmed and a regional Midwest business survey contracted at the fastest pace in years. The dollar will take its cues today from the government’s monthly jobs report and the ISM index of manufacturing. Further evidence of a slowing U.S. economy could spell another bout of dollar weakness, a scenario that would validate the Fed’s still unlocked door to further rate cuts.


Canada’s dollar limped in to week’s end as this week’s developments suggested that Canada might be next in line to lower interest rates. Like it has for the past year, the Bank of Canada held fire on monetary policy, keeping its main rate steady at 1.75%. However, central bankers dialed up their concerns about global headwinds hurting Canadian growth, a dovish tone that suggested a rising risk of a rate cut.


The greenback turned higher after America’s jobs report surprised to the upside, tempering concerns about a moderating U.S. economy. Nonfarm payrolls rose by 128,000 in October, well above forecasts of 89,000. Unemployment moved to 3.6%, a tick above 50-year lows, while wages rose by a solid 3% for the second straight month. While the dollar’s tone has improved, it faces another key test in the ISM index of manufacturing activity at 10 a.m. ET. Forecasts call for a slight improvement after the index fell at the fastest pace in 10 years in September.


Sterling rose after better than expected data on the U.K. economy. British manufacturing contracted in October but at a slower pace, coming in at 49.6 versus forecasts of 48.1. Meanwhile, the sterling-squeezing Brexit narrative has shifted to the backburner, for now, as lawmakers prepare for elections in mid-December that they hope will once and for all solve the Brexit impasse.


The euro surrendered gains against the U.S. dollar after America’s jobs report beat expectations, thereby tempering concerns about a moderating economy. Bouts of euro strength have largely been driven by dollar weakness, leaving it susceptible when the greenback turns higher. Today marks a new era at the ECB as Christine Lagarde officially takes the reins as the central bank’s president from the just departed Mario Draghi.

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