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Currency Market Analysis

Jan 24, 2020 | Currency Market Analysis

Global Themes

Gains against a wide swath of rivals lifted the U.S. dollar index to seven-week peaks. The greenback held aloft near one-month highs against Canada, its strongest in seven weeks against the euro, while it rebounded from two-week lows against the yen and sterling. Britain’s currency initially rallied after upbeat U.K. data but eventually succumbed to profit-taking. The euro fell to early December lows, weighed down by the ECB’s dovish guidance that played up persistent growth risks. Meanwhile, the notion that the U.S. remains home to the healthiest major economy continues to underpin the greenback whose trade weighted index was on pace for the third rise in as many weeks. Better than expected U.S. existing home sales this week kept alive a run of bullish indicators. Canada’s dollar was stationary, albeit in a lower orbit, ahead of central bank-impacting data today on retail sales. 


The loonie continued to nurse an injured wing despite local retail sales proving the strongest in eight months. Retail sales soared by 0.9% in November, well above forecasts of a 0.4% rise. The problem was that much of the spending was on autos. When you back out auto sales, spending rose by a tepid 0.2%, or only half the forecasted rise of 0.4%. Consequently, today’s consumer data won’t allay Bank of Canada concerns about a cautious consumer which will keep the bar in reach for a loonie-negative rate cut this year. 


Sterling initially rose to two-week highs after much-anticipated U.K. surveys on manufacturing and services growth eclipsed forecasts, with the latter growing for the first time in months and at the fastest pace since September 2018. Nevertheless, about half the market is still betting on a Bank of England interest-rate cut from 0.75% as soon as Jan. 30. Despite the data that offered evidence of a post-election boost for the economy, sterling slipped, falling prey to the classic ‘buy the rumor, sell the fact.’ 


The euro slipped to seven-week lows after the ECB Thursday left policy unchanged and maintained a dovish outlook for lending rates. While Friday factory PMI surveys fared better than expected for top economy Germany and the wider euro zone, the outcomes printed well below 50, signaling continued contraction. Next week brings key numbers Monday on Germany’s influential Ifo survey of business confidence and Friday on euro zone fourth quarter growth.

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