USD Kicks off the week on a back foot, EUR Climbs above 100-Day MA

Sept. 17, 2018 (Western Union Business Solutions) – The U.S. dollar slipped toward multi-week lows as trade tensions dominated, pushing to the side optimism over the world’s biggest economy. The dollar weakened toward two- and six-week lows against the euro and sterling but was mostly steady versus counterparts from Japan and Canada. Media reports indicated a likelihood of the U.S. slapping more tariffs on imports from China as soon as this week, a move that could lead Beijing to cancel plans to meet with U.S. officials later this month. Trade friction overshadowed bullish U.S. news last week on the consumer showing solid spending and upbeat attitudes that pointed to strong growth over the summer quarter. The market also seems inclined to lock in dollar gains made since the spring ahead of next week when the Federal Reserve meets and is expected to raise interest rates for the third time this year.




The dollar teed off the week on its back foot as trade tensions overshadowed a generally bullish set of U.S. data Friday on the economy-driving consumer. The market also seems inclined to book some profit on the trade-weighted dollar’s gains of about 5% since April. Low unemployment below 4% looms as an upside risk to inflation, a scenario that has the market pricing a more than 90% likelihood of the Fed raising rates next week to 2.25% from 2%. The Fed’s new forecasts, which it will unveil next week, will be important for the dollar’s coming prospects.




The yen kept near a seven-week bottom against the greenback with USDJPY taking its main cue from yield differentials. America’s 10-year Treasury topping 3% underpinned the buck against its lower yielding Japanese rival. Meanwhile, the Bank of Japan this week meets and its expected to leave its base lending below zero when it renders its policy decision Wednesday. Japan is not expected to join the Fed in normalizing monetary policy for a while yet, a factor that serves as an underlying headwind on the yen. By Contrast, a U.S. rate hike is considered a near certainty next week.




Buoyant oil prices near $70 offered support to Canada’s commodity-influenced currency. Canada’s economy will be in the limelight with data Friday on consumer inflation and retail sales. The data, if solid like the forecasts expect, could put an imminent rate hike more firmly on the table and buoy the Canadian dollar. Ahead of the late week numbers, markets were pricing about a 70% likelihood of a rate increase to 1.75% from 1.50% when bankers next meet on Oct. 24.




The euro firmed toward late August highs against the dollar, helped by data confirming higher overall inflation in the euro zone last month which validated ECB confidence in the outlook for price growth. Data confirmed that euro zone inflation rose at an annual rate of 2% in August, which just topped the central bank’s target of being a whisker below that level. However, the less volatile core gauge of inflation grew at a subdued rate of 1%, a low level that keeps an ECB interest rate hike on a distant horizon.




Sterling pushed to within reach of seven-week peaks. The pound kept on elevated terrain as the latest Brexit headlines have sounded a constructive tone, bolstering expectations for Britain and the EU to eventually reach a pound-positive trade deal as soon as the weeks ahead. Fundamentals will help impact the pound with U.K. data Wednesday on inflation and Thursday on consumer spending. Forecasts call for inflation to continue its moderating trend while modest contraction is on the cards for retail sales. Lower inflation and weaker spending would reinforce the low rate outlook for Britain, a scenario that could leave sterling vulnerable.

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