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Currency Market Analysis

Mar 19, 2019 | Currency Market Analysis

Global Themes

The U.S. dollar slipped broadly ahead of tomorrow’s announcement from the Federal Reserve. The buck softened against the euro, yen and Canadian dollar. Sterling rebounded after a Brexit-induced fall. Emerging markets also kept on their front foot. Come 2 p.m. ET Wednesday, the Fed is all but certain to leave borrowing rates unchanged at a range of 2.25-2.50%. The Fed last year put a tailwind on the dollar thanks to its four interest rate hikes. This year, however, the Fed has telegraphed an indefinite break from raising rates, the catalyst behind the buck’s uneven performance. The Fed tomorrow also will release new forecasts for growth and indicate whether higher rates are on the cards this year. While an overall dovish tone from the Fed may pressure the dollar, the degree to which it does may hinge on whether the bank still sees scope for a rate increase by year-end.


The euro rose to two-week highs for a second day in a row, getting a boost from a bigger than expected improvement on German investor confidence. Germany’s influential ZEW index brightened more than expected to -3.6 in March which beat forecasts of -11 and compared to -13.4 in February. Hopes that Britain might avoid a messy exit from the EU helped to improve investor morale. However, the negative number is still consistent with weak growth in Europe’s biggest economy over the opening months of 2019, a scenario that may not offer meaningful support to the single currency.


The Aussie dollar was an outlier as it underperformed the otherwise weaker U.S. currency. The Reserve Bank of Australia released the minutes of its March meeting overnight which sounded a dovish note on the outlook and reiterated how rates could fall or rise but not anytime soon. Meanwhile, Canada’s currency, while rangebound, scaled two-week highs against the greenback, buoyed by stronger oil markets with crude near $60, a multimonth high.


Sterling rebounded after a Brexit-induced fall on Monday. The pound tumbled after Britain’s House of Commons speaker said that the prime minister couldn’t table another vote on her exit deal since it hadn’t meaningfully changed since its resounding defeat last week. The pound today got more of a fundamental boost as data showed that U.K. unemployment fell below 4%. At 3.9% in January, Britain’s jobless rate is the lowest in 44 years, a bullish sign for the U.K. economy that’s constructive for the Bank of England to raise rates from 0.75% by year-end. The BOE meets Thursday and is widely expected to leave rates unchanged given heightened Brexit uncertainty. 

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