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Currency Market Analysis

Jan 21, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar stepped down from multiweek highs as a deadly virus in China spurred a flight to safety. The yen and Swiss franc outperformed, leading the greenback to soften below four-week peaks. Sterling led the European pack higher as solid U.K. jobs data stopped short of cementing an imminent cut in British borrowing rates. The euro firmed while commodity currencies from Canada and Australia, along with emerging markets, succumbed to risk off conditions. Risk aversion reigned on worries about China’s coronavirus, a pneumonia-like illness that has reportedly led to four deaths and sickened hundreds. Markets worry that the deadly virus could spread rapidly during China’s Lunar holiday, a busy travel season, potentially impacting the tourism industry. The focus on China dimmed the spotlight on the greenback which has rallied in the wake of rosy readings on the U.S. economy. 


The euro steadied above four-week lows as markets grew wary about China’s deadly virus spelling uncertainty for tourism. The euro started the week in its largest hole in weeks, squeezed by bullish U.S. data. Key for the euro this week will be the ECB’s maiden meeting of the year Thursday when central bankers are expected to leave policy unchanged at ultra-accommodative levels.


Sterling strengthened after a solid look at the U.K. job market stopped short of cementing a Bank of England rate cut as soon as Jan. 30. British unemployment steadied at 3.8%, the lowest in more than four decades. Also of importance to the somewhat wavering interest-rate debate will be preliminary numbers Friday on U.K. manufacturing and services growth. The pound could maintain a resilient trajectory if the late week numbers should lessen urgency for a BOE rate cut. 


Canada’s dollar slipped as global risk aversion weighed on currencies with the closest ties to global growth. Stocks and the price of oil tumbled with crude down more than 1% to below $58. Today marks the eve of the Bank of Canada’s initial rate meeting of the year, when bankers are all but certain to keep its policy rate parked at 1.75% in the wake of reassuring jobs data. Steady policy with a more optimistic outlook for global growth would tend to support Canada’s dollar. 

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