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Currency Market Analysis

Dec 18, 2019 | Currency Market Analysis

Global Themes

Dollar peachy for now ahead of possible impeachment

America’s dollar added to the previous day’s gain as strong data was consistent with steady rather than lower U.S. interest rates. The buck was steady to stronger against all of its main rivals. Britain’s pound fell further as this week’s Brexit developments reintroduced the risk of a disorderly exit from the EU after 2020. U.S. numbers this week on housing and industrial production fared better than expected, tempering slowdown concerns. The data weakened the case for the next move being downward in U.S. lending rates. The German economy appears to have bottomed, news that so far has failed to inspire euro buying. A gauge of German business confidence rose for the second straight month in December. The U.S. dollar has largely shrugged off the risk of President Trump becoming the third commander in chief to be impeached as markets bet against his removal from office.


Canada’s dollar rose after area inflation moved back above the local central bank’s 2% goal. Headline inflation increased at an annual rate of 2.2% in November which was in line with forecasts. Some of the core measures of inflation that the Bank of Canada keeps close tabs on also exceeded 2%. Hotter inflation can buy the BOC more time to keep borrowing rates steady at 1.75%. The lower risk of an economy-supporting rate cut excited loonie bulls. 


The euro shadowed European currencies lower against the greenback despite another green shoot sighting in the bloc’s biggest economy. Germany’s Ifo index of business confidence brightened for the second time in as many months. Still, another survey confirmed that euro zone inflation held at an undesirably low 1% in November, a weak level that keeps alive the risk of more monetary stimulus from the ECB. EURUSD’s move today below a key technical level, its 200-day moving average, could invite more selling over the holiday period. 


Sterling followed up its worst day in more than a year with more losses. The pound shed two cents or 1.5% Tuesday, which amounted to its weakest one-day performance since November 2018, as Brexit developments reintroduced the risk of a disorderly EU exit after 2020. On the local inflation front, prices steadied at a tepid 1.5% in November. Inflation sticking below the Bank of England’s 2% goal will increase the chance of some policymakers voting tomorrow for a sterling-negative rate cut from 0.75%.

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