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Currency Market Analysis

Jan 23, 2020 | Currency Market Analysis

Global Themes

Central banks and China’s illness share center stage

The U.S. dollar was mostly steady as central banks and China’s deadly virus shared center stage. Lower stocks and higher risk aversion boosted the safe bet yen to 10-day highs. The dollar was little changed against Europe and ascended to one-month highs against the Canadian dollar. The Aussie and kiwi dollars benefited from the former’s reassuring jobs report while emerging markets weakened. The central-bank spotlight shifted from Ottawa yesterday to Frankfurt today where the ECB just announced no change to policy. Key for the euro will be whether ECB President Christine Lagarde sounds a dovish or hawkish tone with respect to the outlook for the 19-country economy. Canada’s dollar tumbled after the BOC left policy unchanged but sketched a dimmer outlook for growth that lowered the bar to lower lending rates. Concerns flared anew about China’s coronavirus that’s perceived as a potential threat to global growth.


The euro was little moved by the ECB’s first policy decision of the year. As expected, the 19-nation central bank left its main borrowing rate unchanged at zero. On the outlook, Ms. Lagarde, the central bank president, acknowledged that data of late has been consistent with continued moderate growth. Until the European economy shows more convincing signs of strength, the euro is likely to keep to its range. The ECB embarked on a review of its monetary policies which could have ramifications for its hard to reach inflation goal of just below 2%, a sensitive subject for the single currency. 


Better than expected news on the U.S. job market extended a streak of solid data, the fuel that’s propelled the dollar higher. Weekly jobless claims rose less than expected to 211,000 from a revised 205,000. While higher, the print is still consistent with the labor market firing on all cylinders. An absence of much U.S. data this week, coupled with global growth risks from China’s deadly illness, has put a brake on the dollar’s data-inspired upturn.


Sterling steadied as it consolidated a rally that drove it to two-week peaks. Market odds suggesting a lower risk of a U.K. rate cut next week helped to retread sterling’s tires, giving it better traction. Friday data on factory and services growth could prove pivotal to the wavering rate debate. The chance of a rate cut on Jan 30, Mark Carney’s final meeting as central bank governor, decreased to a coin toss from 70% days ago.


A one-two punch of rising rate-cut risk and weaker oil knocked Canada’s dollar to one-month lows. The Bank of Canada Wednesday yanked the rug from under 2019’s strongest G10 currency after it dialed up concerns about growth which lowered the bar for a rate cut from 1.75%. The odds of a move as soon as the BOC’s next meeting on March 4 topped 20% from below 5% before yesterday’s decision. A cut is fully priced in by October. Coming data, like retail sales Friday and monthly growth on Jan 31, holds the key to the loonie’s short-run fate. 

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