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Currency Market Analysis

Jan 20, 2020 | Currency Market Analysis

Global Themes

A data-inspired U.S. dollar climbed to four-week peaks in holiday-subdued trade. The greenback rose against all of its main peers and scaled Christmas Eve highs versus a broad basket of currencies. Strong data last week suggested little, if any, loss of horsepower for the world’s largest economy during the fourth quarter. Consumers spent for the third straight month in December while the 17% spike in housing starts proved the strongest in 13 years. Central banks hold the key to currencies over the balance of the month. Japan, Canada and the euro zone issue interest-rate announcements this week on Tuesday, Wednesday and Thursday, respectively. The Federal Reserve and Bank of England render rate decisions next week with the former seen on hold and expectations rising for the latter to lower borrowing costs to all-time lows. Wall Street is closed today for Martin Luther King, Jr Day.


The euro fell to more than three-week lows in holiday-light trade Monday. The euro is finding it harder to compete against the greenback which received a fundamental lift last week from upbeat U.S. data. The euro’s sights this week are set on the ECB’s first policy decision of the year on Thursday. No changes are expected. The euro would be prone to keeping to the range if the ECB plays up economic stabilization, albeit at still low levels.


Sterling moved within a half-cent of late December lows against its U.S. counterpart. The pound has sputtered of late as weak U.K. data points to a rising risk of an imminent rate cut from 0.75% by the Bank of England. Look for Britain’s rate debate to be swayed this week by unemployment data Tuesday and Friday when PMI surveys print on manufacturing and the economy-driving services sector. Forecasts call for improvement which if realized could buy the central bank some time to keep its limited policy powder dry, a scenario that would tend to strengthen the pound.


Impending event risk kept the loonie on a narrow path. Canada’s buck was broadly flat ahead of midweek news on local inflation and the Bank of Canada’s first policy decision of the year. While Canada’s economy has fared mixed of late, the fact that the job market closed out 2019 on a stronger footing likely means central bankers will keep their policy rate parked at 1.75%. Steady rates, coupled with reduced concerns about global growth, would tend to buoy the loonie.

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