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Currency Market Analysis

Jan 22, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar was in mixed but overall steady shape as concerns about a global health scare moderated. The buck was flat to firmer against the euro, yen and Swiss franc while it lost ground to the Canadian dollar and sterling. Worries about China’s deadly coronavirus, while still elevated, abated as investors took comfort from Beijing’s stepped up efforts, such as surveillance and screenings of the disease, to contain the crisis. Canada’s currency will command the spotlight today with the Bank of Canada issuing its first policy decision of the year. No change to the central bank’s 1.75% lending rate is expected. The loonie could test the upper limits of its range if Ottawa should sound a more optimistic outlook for Canadian growth given reduced concerns about global trade. The BOC will render its policy decision at 10 a.m. ET.


The euro stabilized after an overnight descent to four-week lows. The single currency received a short-lived boost this week after German investor optimism reached four-year highs in January. But appetite for the euro subsided ahead of tomorrow when the ECB mulls its first policy decision of the year. No change to policy is expected, putting the focus on the bank’s outlook for growth. A cautious, though slightly improved, outlook for growth might be enough to entice euro bulls to bid the common currency higher. 


Sterling popped to two-week highs as the odds of a local rate cut next week slipped below 50% from as high as 70% in recent days. U.K. data this week showing strong hiring and the lowest jobless rate in four decades tempered worries about the health of the world’s No. 5 economy. Watch those Friday numbers on U.K. manufacturing and services growth which will be the next to influence the fluid rate debate. But it’s not solely the BOE’s perceived rate path impacting the pound. Another factor is anticipated investment flows back into Britain with last month’s election in the rearview mirror, and a political Brexit expected to commence at the end of the month. 


Canada’s dollar pared gains after data painted a mixed picture of the economy. The real focus today is on the Bank of Canada’s 10 a.m. ET decision. Ahead of the BOC, data showed a one-tick rise in core inflation to 2% in December, hitting the BOC’s bullseye. But another negative print, the third in five months, for wholesale trade was consistent with weaker fourth quarter growth. On balance, today’s data was consistent with a closed, though not locked, door for the BOC’s policy rate over coming months.

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