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Currency Market Analysis

Jan 14, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar scaled new highs against the yen and sterling but was otherwise confined to familiar ranges. The greenback enjoyed nearly across the board gains, rising versus all of its major peers except the Swiss franc. Growing rate-cut risk in the U.K. continued to weigh on the pound which flirted with three-week lows. A reduction in global uncertainties has sapped demand for the yen which fell to nearly eight-month lows. The U.S.-China trade conflict is the week’s focal point ahead of an anticipated signing ceremony Wednesday on a first phase accord. A raft of U.S. numbers are also in focus with data today on consumer inflation and Thursday on consumer spending. Central bank decisions next week in Canada and the euro zone, and the week after in the U.S. and Britain, loom as coming catalysts for currencies.


A rise in oil markets failed to lend a lift to Canada’s dollar which favored the bottom end of a confined range. A cautious market backdrop with Wall Street signaling a negative start to the day weighed on the loonie. Downside for Canadian currency has been checked by expectations for the Bank of Canada next week to maintain steady interest rate policy at 1.75%. Canada’s data calendar is relatively light in the run-up to the BOC’s first decision of the year on Jan. 22.


The greenback caught a boost Tuesday from the view that U.S. growth, while slowing, remains a bastion of strength for an otherwise shaky global economy. Across the pond, Britain is perceived at growing risk of cutting borrowing rates to try to stave off a sharper economic slowdown. Data today on U.S. consumer prices showed inflation broadly contained. Monthly numbers slowed a bit more than expected. And while the annual numbers topped 2%, the Fed’s primary inflation yardstick, the core PCE index, is currently at a benign 1.6%.


Growing risk of a U.K. rate cut pushed the pound further downward to its lowest level in three and seven weeks against the greenback and euro, respectively. Following a run weak U.K. data and a chorus of dovish remarks from Bank of England officials, the odds of a rate cut from 0.75% on Jan. 30 have swung from the single digits last week to around 50%. Britain’s sputtering economy is a sign that Brexit has taking a bigger than expected bite out of growth. Coming data like inflation tomorrow and retail sales Friday could loom larger for rate cut prospects, particularly if the outcomes are consistent with an economy that stalled toward the end of 2019.

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