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Currency Market Analysis

Jan 09, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar flirted with two-week highs as geopolitical tensions cooled and America’s economy showed signs of warming. The dollar overnight climbed to late December peaks against a handful of rivals including the euro, yen and Canadian dollar. Sterling led major currencies lower against the greenback, with a 0.5% fall. Markets are taking comfort from a cooling in U.S.-Iran tensions after conciliatory words from President Trump. The Mideast crisis going from a boil to a simmer allowed bullish U.S. fundamentals to return to the surface, buoying the dollar. U.S. numbers this week showed the smallest trade gap in years and stronger than expected private sector hiring. Signs of a resilient U.S. economy bolstered confidence that tomorrow’s U.S. jobs report will show unemployment sticking around half-century lows. 


Oil prices rose but remained at lower levels below $60, a move that kept the loonie in its largest hole in more than a week. Canada’s dollar also has come under profit-taking following its scorching hot 2019 when it finished first among G10 currencies. The eve of Friday’s first jobs report of the year proved an opportune time for players to pull some chips off the table. Job growth is forecast to rebound in December after shedding more than 70K workers in November. A surprisingly soggy jobs survey would strengthen the argument for the Bank of Canada to lower interest rates which would be loonie-negative.


The euro tested the bottom of its range and received a passing grade for now. The euro’s ability to not make a decisive break below a key floor allowed it to stabilize after hitting two-week lows. Germany let loose better data as industrial output rose more than expected while euro zone unemployment steadied at 7.5% in November, a elevated level but the lowest in more than a decade.


The yen sank from three-month peaks following a marked cooling in geopolitical tensions. The notion that the U.S.-Iran situation has peaked and may not spiral into all-out war helped to renew investor appetite for higher-yielding assets. As a result, U.S. Treasury yields climbed, putting a tailwind on USDJPY. But the still precarious situation could limit downside moves in the safer yen. 


Sterling tumbled 0.5% to late December lows following dovish words from Mark Carney, the Bank of England’s outgoing governor. Mr. Carney hinted at cutting lending rates if the U.K. economy continued to sputter. Brexit uncertainty has weighed on Britian’s economy, the world’s fifth largest. 

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