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Currency Market Analysis

Feb 14, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar steadied, albeit with a revved motor, on caution ahead of an important look this morning at the health of America’s growth engine. The euro stabilized somewhat after notching April 2017 lows. The yen also steadied while sterling pared the previous session’s politically-inspired gain. Improved risk sentiment and higher oil buoyed Canada’s dollar. The euro was poised for its lousiest two-week stretch in nearly two years after German growth last quarter unexpectedly flatlined. Growing recession risks in Europe have taken a toll on the single currency which has shed 2 ½ cents so far this month. Meanwhile, American consumers likely spent for the fourth straight month in January. A rise in retail sales would be consistent with the U.S. economy holding in a higher gear than many of its main peers, the bullish narrative behind the dollar’s outperformance.


Oil’s climb to February highs above $52 helped to whet appetite for commodity assets like Canada’s dollar. The loonie gained altitude this week on hopes that the coronavirus might run its course as soon as April. Global developments have weighed on the Canadian dollar this year which has shed about 2% against the greenback.


The euro found tentative footing after an overnight extension of its slide knocked it to April 2017 lows. The euro this week has crashed through a couple key support levels, a reflection of the bloc’s dimmer economic prospects. Adding to the bloc’s weak backdrop, German growth flatlined with a zero reading during the fourth quarter, falling short of already anemic forecasts of a modest rise. So-called soft sentiment data next week like Germany’s ZEW survey of investor morale Tuesday will be an important signal of the extent to which Europe’s biggest economy has sputtered.


Mixed news on the economy-driving consumer caused the U.S. dollar to surrendered some gains ahead of the long holiday weekend. Retail sales rose by 0.3% in January as expected but the less volatile core reading stagnated, hinting at underlying consumer caution that could keep the economy on moderating path. While the U.S. economy remains on stronger footing than Europe, the mixed messages on the consumer were enough to spur some end of week profit-taking after the dollar’s bull run. The Fed next week will release the minutes of its January meeting Wednesday which are forecast to show central bankers sitting on the sidelines monitoring how last year’s trio of rate cuts impact growth.


Sterling was on track for a winning week but surrendered some of its politically-motivated gains of a day earlier. The change this week to a finance chief perceived as fiscally friendlier by markets buoyed the pound. The sense now is that Britain may soon unveil a budget that steps up government spending to shore up an economy that’s been restrained by Brexit uncertainty. Economic support from the Johnson administration would alleviate pressure on the Bank of England to lower interest rates.

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