Currency Market Analysis

Jan 28, 2020 | Currency Market Analysis

Global Themes

Global markets regained some composure while the stronger greenback flirted with two-month peaks. America’s buck rose against the euro and yen, notched a one-week peak against sterling, and neared seven-week highs against Canada. Global stocks recovered some poise after the biggest selloff in months a day earlier. Investors are still taking stock in China’s deadly virus which remains precarious and a potential threat to global growth. The buck’s gains are multi-dimensional as it serves as a safe harbor from global uncertainty while America’s fundamentally sound economy suggests a low likelihood of the Fed, which starts a two-day meeting today, veering off its steady interest rate path, a boon to the dollar against lower-yielding peers. While China’s coronavirus continues to dictate market sentiment, investors today will also parse U.S. numbers on durable goods and consumer confidence with the latter forecast to remain elevated.

GBP

Sterling fell to one-week lows, pressured by rate cut risk and expectations for Brexit uncertainty to last well beyond Friday’s formal split from the EU. The Bank of England issues its first decision of the year Thursday and the final one with Gov. Mark Carney at the helm. The market appears evenly split on whether policymakers will lower rates from 0.75%, suggesting a post-announcement move for sterling is almost certain. No rate cut this week but dovish guidance for the policy outlook would tend to limit scope for sterling gains.

CAD

Steady oil around $53 helped the loonie pare losses after sinking overnight to seven-week lows. China’s coronavirus continues to dictate sentiment for commodity correlated assets such as the loonie. Markets regained some poise Tuesday but concerns over the virus are likely to leave growth-linked assets on vulnerable ground over the short run. Canada’s dollar will look for fundamental direction from a Friday report on November growth which is forecast to flat line after a mild contraction in October.

EUR

The euro sputtered against safer rivals as it clocked two-month lows against the greenback and yen and its weakest since April 2017 against the Swiss franc. The ECB last week catalyzed a bearish turn for the euro after it hinted at low interest rates for longer given the bloc’s anemic recovery. It also didn’t help that an influential gauge of German business confidence unexpectedly deteriorated to begin the year. The euro’s retreat pushed it to the bottom of its range against the dollar, a level that if breached could open the door to more weakness over the short run.


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