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Currency Market Analysis

Dec 17, 2019 | Currency Market Analysis

Global Themes

The U.S. dollar rose against most peers thanks to strong gains against sterling and the Australian dollar. While weaker against the euro, the buck firmed against the yen and Canadian dollar and most emerging markets. Brexit uncertainty reared its head again to the detriment of the U.K. pound. Sterling slid more than 1% as Britain’s prime minister seeks to avoid an extension of the transition period beyond next year, potentially putting a disorderly Brexit more firmly on the table. Meanwhile, the Aussie dollar tumbled more than 0.5% after dovish central bank minutes kept the door ajar to lower interest rates. On tap today are U.S. reports on housing starts and industrial production. The week’s main focus is consumer spending and inflation data, due Friday.


Sterling relinquished a significant portion of its post-election gain as it tumbled more than 1% against both the dollar and euro. Sterling-negative Brexit uncertainty returned to the forefront with Prime Minister Boris Johnson seeking to make it illegal to extend the transition phase with the EU beyond 2020. The U.K. is expected to enter an 11-month transition period after its scheduled departure from the EU on Jan. 31, a move that became all but certain after Mr. Johnson last week cruised to victory with a strong Conservative majority in Parliament. Sterling has shed nearly 4 cents since climbing to May 2018 highs in the wake of last week’s vote.  


The euro was the initial benefactor of renewed Brexit uncertainty which propelled the single currency higher against both sterling and the greenback. The move appears to be the knee-jerk variety for the euro as Brexit uncertainty would only complicate Europe’s already challenging economic backdrop. A better test of euro sentiment arrives Wednesday with the final reading of euro zone inflation for November which is forecast to go unrevised at a low 1%, compared to the ECB’s near 2% bullseye.


Canada’s dollar fell from six-week peaks as caution returned to markets. Moves in USDCAD were modest, particularly after oil pushed to new three-month highs above $60. Canada’s dollar soared Monday to early November highs on elation over the U.S. and China reaching an initial phase trade truce. Developments that suggest a brighter outlook for global growth tend to buoy the loonie given Canada’s export-driven economy.

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