Currency Market Analysis

Nov 18, 2019 | Currency Market Analysis

Global Themes

Has Europe turned the corner? Dollar’s performance offers hints

The greenback was little changed Monday but nursed a fragile underbelly on hopes that the global slowdown may be showing nascent signs of bottoming. The euro, sterling and Canada firmed while the U.S. currency rose versus safer assets like the yen and Swiss franc. Markets are also cautiously hopeful in the U.S. and China making progress toward an elusive trade deal. The Chinese media over the weekend reported “constructive talks” between the U.S. and China. Sterling neared four-week highs against the greenback on expectations Britain’s Conservative Party could win a majority in elections next month which could put the U.K. on a path to exit the EU with a trade deal by early next year. A key focus on the coming will be Friday factory surveys from Europe that are forecast to show improvement. Other focal points include U.S. housing data and the minutes from the Fed’s last meeting. 

EUR

The euro rose to 1 ½ week highs ahead of late week data from Europe that may show tentative signs of improvement. The euro and other export-exposed currencies caught a boost on cautious optimism in the U.S. and China making strides toward an initial phase trade pact. But for meaningful euro gains, data Friday on German and euro zone factory PMIs for November would need to show some progress. 

CAD

Canada’s dollar rebounded from one-month lows ahead of influential data this week. The loonie also found support from hopes that the U.S. and China would eventually reach a first phase trade deal. Doing so would alleviate global uncertainties that have squeezed currencies of economies that rely on exports as a chief growth engine. Forecasts for Canadian data Wednesday and Friday call for steady inflation near the Bank of Canada’s 2% goal and a modest uptick in consumer spending. If the forecasts prove accurate they would validate markets’ low expectations for the BOC to cut rates this year.

GBP

Sterling flirted with four-week highs against its U.S. rival as polls indicated a solid, double-digit lead for Conservatives ahead of elections on Dec. 12. A majority win for the Tories over the opposition Labour Party would suggest better prospects of the U.K. departing the EU by late January with a deal that smooths its exit. Look for political headwinds to carry the week for sterling given the lack of much domestic data.


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