Currency Market Analysis

Dec 12, 2019 | Currency Market Analysis

Global Themes

The greenback steadied after suffering a Fed-induced setback that knocked it broadly lower. The dollar hovered around one-month lows against the euro, Aussie dollar and loonie, while it descended to multimonth lows against rivals from Britain, Switzerland and New Zealand. As expected, the Fed Wednesday left borrowing rates unchanged after a trio of rate cuts since July. The Fed forecast no rate changes for all of 2020. The Fed sounding more dovish on tepid inflation is what injured the buck. The sense that healthier inflation ranks high on the Fed’s holiday wish list suggests a greater likelihood of the next move being downward rather than upward for lending rates. Meanwhile, a big day for Europe is underway. It’s Election Day in the U.K. while the new-look ECB just announced no changes to interest rates. All eyes are on Christine Lagarde’s first press conference as ECB president at 8:30 a.m. ET. 

GBP

The pound scaled fresh 8-month peaks overnight only to lose some ground as Britons headed to the polls. It’s Election Day in the U.K. A majority win for Boris Johnson’s governing Conservative Party could be sterling’s ticket higher, potentially toward 2019 highs reached in March. However, a surprise win for Labour’s Jeremy Corbyn or a hung parliament would spell renewed uncertainty for all things Brexit, a scenario that could potentially pull the rug from under the pound.

EUR

The euro held near five-week highs after the new Christine Lagarde-led ECB left borrowing rates unchanged. Ms. Lagarde struck a less dovish tone with respect to economic fundamentals, suggesting more room to the upside for the euro over the short-run. The new ECB president noted early signs of economic stabilization taking hold. Still, the ECB forecast inflation holding below its near 2% goal through 2022. Ms. Lagarde indicated she was neither a policy hawk or dove but aspired to be more like a wise ‘owl.’

CAD

The greenback’s Fed-induced dive pushed the Canadian dollar toward recent one-month peaks. The Fed Wedensday left borrowing rates unchanged and signaled a steady playbook for policy next year. But the Fed chair sounded a renewed resolve to boost muted inflation, now at 1.3%, up toward the central bank’s 2% goal, a dovish tone that suggested the next move could be a dollar-negative rate cut rather than a dollar-positive rate hike. Following weaker data, the potential for a cautionary message today from Bank of Canada Gov. Stephen Poloz could leave the loonie vulnerable.


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