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Currency Market Analysis

Jan 16, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar softened for the third time in four days on caution ahead of a slew of American economic numbers this morning. Sterling led European currencies higher while the yen slipped and the Canadian dollar inched up. The Aussie and kiwi dollars along with emerging markets also rose. This week’s mini trade deal between the U.S. and China hasn’t proven a game changer for the greenback since it merely helped to defuse the dispute while continued tariffs won’t fully remove a cloud of uncertainty over the world economy. Data is likely to carry the coming days with a host of U.S. figures today like retail sales, import prices, a key gauge of inflation, and the Philly Fed index of business conditions along the Mid-Atlantic. The economy-driving U.S. consumer likely spent at a faster pace last month, an outcome that if realized would temper concerns about slowing U.S. growth.


Sterling rose above late December lows as investors dialed back on rate cut expectations. Britain’s economy and Bank of England officials have seemingly set the stage for a rate cut as soon as the bank’s Jan. 30 meeting. Still, the odds of a 25 basis point rate cut to 0.50% in two weeks’ time stands at a little better than 50%. Moreover, Britain’s limited monetary firepower could give bankers cold feet about acting. Coming data like retail sales Friday and unemployment on Jan. 21 could prove decisive in swaying the rate debate.


At its highest in more than a week, is the euro skating on thin ice? The single currency found a modicum of support as recent data, while weak, hasn’t torpedoed the notion of the bloc’s ecoomy stabilizing, albeit at low levels. The euro’s ability to weather Germany’s weakest year of growth, when in grew at a 0.6% pace in 2019, in 6 years helped to fan a relief rally. Investors also appear to be easing off the euro sell button ahead of the ECB’s first policy decision of the year on Jan. 23.


The dollar snapped back after a U.S. data depicted the world’s biggest economy firing on more cylinders than most global peers. Retail spending accelerated, weekly jobless claims unexpectedly improved, and the Philly Fed index breezed above forecasts, showing the strongest growth in months. The data allayed worries about a marked slowdown in fourth quarter growth from the third quarter’s 2.1% pace.


Canada’s loonie edged up thanks mostly to risk-friendly trading conditions. Wall Street was poised to rise above the previous day’s fresh highs, though oil markets remained around subdued levels. A lack of much Canadian data ahead of the Bank of Canada’s coming meeting on Jan. 22 has offered little impetus to buy or sell Canada’s currency, the previous year’s highest flier among G10 rivals.  

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