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Currency Market Analysis

Feb 10, 2020 | Currency Market Analysis

Global Themes

The high-flying greenback cooled its jets as a risk event-laden week got under way. America’s dollar edged off multimonth peaks against the euro, sterling and Canadian dollar. The Aussie dollar stabilized after sinking to decade-plus lows with emerging markets also firmer against their U.S. rival. The greenback has been in a groove of late amid mounting evidence of U.S. economic resilience. Numbers last week showed stronger than expected manufacturing and services growth and faster than expected hiring in January. The data dampened consensus bets of the Federal Reserve cutting interest rates later this year. Caution at the start of a week in which the Fed chairman will testify on Capitol Hill (Tuesday and Wednesday) and include top tier data like U.S. consumer prices (Thursday) and retail sales (Friday) conspired to cool the greenback’s offensive run to four-month highs on a trade-weighted basis.

EUR

New week, new October lows for Europe’s single currency. The euro is still nursing wounds that were reopened last week by disappointing data from Germany, Eurpe’s biggest economy. Hopes of a nascent economic rebound taking shape were unmoored by the weakest German factory growth in a decade in December. The euro this week faces economic hurdles in Friday data on German and euro zone growth during the fourth quarter.

CAD

Canada’s dollar found some footing after sinking to 2 ½ month lows. But weaker global stocks and oil markets do not bode well for meaninful gains for Canada’s commodity-driven currency. Local jobs data last week put a tentative floor under the loonie as stronger than expected hiring and near record low unemployment in January stopped well short of strengthening the case for the Bank of Canada to lower lending rates. A dearth of Canadian data this week means that global market sentiment could be the primary guide for the loonie.

GBP

Sterling tumbled to 2 ½ month lows overnight before catching its breath. The pound is fresh off its worst week since mid-December when it shed 3 cents against the greenback on the risk that the U.K. and Brussels might fail to reach a trade agreement. The pound’s seemingly oversold state left it ripe for picking for pound bulls, some of whom emboldened by better U.K. data. Britain’s main economic event arrives with Tuesday data on fourth quarter growth.


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