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Currency Market Analysis

Feb 13, 2020 | Currency Market Analysis

Global Themes

The yen and haven assets bounced back as coronavirus concerns intensified. The U.S. dollar fared mixed as it surrendered three-week highs against the yen but climbed to 2 ½ year peaks against the beleaguered euro. Sterling was the top performer while commodity currencies tracked global equity and oil markets lower. The big news overnight was a spike in new coronavirus cases which rattled markets and increased concerns about moderating global growth. Dollar bulls and euro bears are running in unison as recession risk rises in Europe which at best suggests lower lending rates for longer and at worst could inspire the ECB to beef up already lavish stimulus. Currencies will look for cues today from U.S. consumer inflation and data Friday on retail sales. Euro zone fourth quarter growth Friday will be crucial for the euro. 


Sterling jumped above 2 ½ month lows after a change in finance chief in Britain bolstered chances of new fiscal stimulus next month to shore up the nation’s Brexit-taxed economy. With Sajid Javid out and replaced by Rishi Sunak, the switch stoked optimism that the new finance minister would allow for the coming U.K. budget, due on March 11, to meaningfully ramp up fiscal support which would ease pressure on the Bank of England to lower interest rates.


The U.S. dollar had its growing popularity reinforced by constructive data showing continued low weekly jobless claims and tame but rising inflation. Jobless claims inched up to 205,000 but printed below forecasts of an increase to 210,000. Overall U.S. consumer inflation increased by two ticks to 2.5% annually in January, the highest since October 2018. The trade-weighted dollar’s uptrend to four-month highs will be tested next by Friday figures on European quarterly growth and U.S. retail sales, the lifeblood of America’s economy. 


Renewed concerns about the coronavirus undercut a rebound in the Canadian dollar and sibling commodity counterparts from Down Under. The loonie edged toward four-month lows following news of an overnight spike in new cases of the deadly virus. Still, the cause of the surge in new cases was reportedly attributed to a new way of diagnosing the disease. Nevertheless, today’s price action underscores markets’ heigthened sensitivity to all things China at the moment, a risk factor for commodity-correlated assets. 


A dismal euro zone factory survey Wednesday was the straw that broke the euro’s back, tipping it to 2 ½ year lows against the U.S. dollar and 4 ½ year lows against the Swiss franc. The survey added to mounting evidence of deteriorating manufacturing conditions in Germany and the wider euro area. How low the euro goes may hinge on the health of fourth quarter growth data from Germany and the euro bloc Friday. Prints that should fall short of forecasts of an anemic 0.1% rise would risk another leg lower for the euro. 

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