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Currency Market Analysis

Feb 07, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar cruised to fresh four-month highs in data-driven trade. Though weaker against the yen, a telltale sign of the coronavirus dampening sentiment, the greenback notched new October and December peaks against the euro and Canadian dollar, respectively. Sterling wallowed at six-week lows while the China-exposed Aussie dollar hit a 10-year trough after Australia’s central bank downgraded its growth outlook. The buck’s gains this week have been fueled by global data painting pictures of resilience in the U.S. and rising recession risk across the Atlantic. America’s January jobs report today is forecast to show unemployment holding at a half-century low of 3.5%. Meanwhile, data from Germany, the bloc’s biggest economy, appears to be going from bad to worse after a report showed the biggest plunge in industrial output in a decade.


Canada’s dollar pared losses after north of the border hiring last month proved stronger than expected. Canada added 34,500 jobs in January, more than double forecasts of 15,000. Unemployment fell by a tick to 5.5% while wages accelerated at a 4.4% pace from 3.8% in December. While rosy on the surface, the data came with a worrisome downgrade to December that showed a loss of 2,800 jobs compared to the initially reported increase of more than 35,000. The data, on balance, appears strong enough for Canada to keep policy steady in March but underlying weakness will keep the door open to a cut in coming months.


Sterling fell to six-week lows and was on pace for a losing week as uncertainty over a Brexit trade deal overshadowed a string of encouraging U.K. data. Tough rhetoric on a trade deal between London and Brussels suggested the parties were far apart and at risk of ending the transition period without reaching an agreement. Sterling bulls are also treading cautiously ahead of next week when a Tuesday report is forecast to show Britian’s economy flatlined during the fourth quarter.


The U.S. dollar held aloft near four-month peaks after stronger than expected hiring capped off an impressive week for the world’s biggest economy. The U.S. added 225,000 jobs in January, above forecasts of 160,000. Unemployment inched above 50-year lows to 3.6% but wage growth accelerated to a 3.1% annual rate from an upwardly revised 3% in December. Robust hiring in January was likely mother nature-related as it benefited sectors like construction. The data, nevertheless, added to a resilience week for the U.S. economy and could buy the Fed more time along the sidelines, a dollar-friendly situation.


The euro tumbled to four-month lows as consecutive days of dismal data from Germany soured sentiment and fanned recession worries. In a blow to ECB optimism about stabilization taking hold, German industrial took a surprising plunge of 3.5% in December, the weakest showing in a decade. Moreover, data from France, Europe’s No. 2 economy, was similarly worrisome. The euro’s tumble of around 1.2% this week had it on track for its worst week since November. Further evidence of widening growth differentials in the U.S.’s favor could soon see the euro take aim at its 2019 low.

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