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Currency Market Analysis

Jan 31, 2020 | Currency Market Analysis

Global Themes

A weaker U.S. dollar remained camped below two-month highs in virus-induced risk averse trade. The dollar softened against its European and Japanese peers but climbed to higher ground against commodity and emerging market counterparts who have borne the brunt of concerns about the spreading coronavirus weighing on Chinese and global growth. The greenback encountered speed bumps after bursting to two-month peaks after U.S. growth last year proved the weakest in years which solidified expectations of another insurance rate cut by the Fed. Meanwhile, a cry for a rate cut is emanating from America’s bond market with the benchmark 10-year yield at October lows. The perception that any decline in U.K. lending rates may happen later rather than sooner allowed sterling to add to the previous day’s gain. Before calling it a month, traders will parse numbers on U.S. consumer spending and inflation and growth from north of the border.


The euro firmed above two-month lows as it received a technical reprieve after it dodged a decisive fall below key support. The U.S. currency unraveling some of its early year gains also put a tailwind on the single currency. European fundamentals remain on shaky ground after data showed the euro area grew at an underwhelming 0.1% pace during the fourth quarter, the weakest since early 2013.


Canada’s dollar kept in its biggest hole in more than seven weeks despite better than expected growth data and oil a bit above October lows. Canada’s economy eked out growth of 0.1% in November which offset a 0.1% decline in October and just eclipsed forecasts of zero. The speck of growth though won’t be enough to overshadow rising concerns about the coronavirus taking a toll on global growth and oil demand.


Sterling extended a Bank of England-fueled rally. After the BOE this week held British borrowing rates unchanged at 0.75%, surprising many, the rate debate has shifted to any cut materializing later rather than sooner as policymakers monitor incoming data and transition to a change in governor in March to Andrew Bailey from Mark Carney. Tonight marks the U.K.’s formal split from the EU. Still, uncertainty over a trade agreement will remain a sensitive subject for the pound, keeping it vulnerable.


The dollar remained in the red on the session but solid data boded well for underlying sentiment. Inflation rose and consumers spent, a recipe for continued, albeit moderate, U.S. growth. The Fed’s main inflation yardstick, the core PCE index, ticked up to 1.6% in December from 1.5%. The 0.3% rise in consumer spending matched forecast. The dollar index was on track for a monthly gain of around 1.5% thanks to virus-inspired haven flows and America’s economy keeping in a higher gear than its top peers.

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