September 25 2018

Sept. 25, 2018 (Western Union Business Solutions) – The U.S. dollar was mostly listless ahead of an expected interest rate hike by America’s central bank. The euro kept firm near three-month peaks thanks to hawkish comments this week by the head of the ECB. Sterling was also positive while the yen fell to fresh two-month lows as safer plays struggled with global stocks higher. Canada’s dollar steadied near one-week lows as elevated trade tensions overshadowed higher oil prices above $72. The Fed starts a two-day policy meeting today that’s all but guaranteed to deliver a ¼ point rate hike tomorrow. The buck’s lackluster tone is a sign that some think the Fed might not sound an overtly hawkish tone when it renders its decision Wednesday at 2 p.m. ET. Ahead of the Fed’s big announcement, on tap today are U.S. reports on home prices and consumer confidence with mild moderation on the cards.




The yen weakened to its lowest in more than two months, pressured by expectations of a U.S. rate hike this week and higher global stocks, a backdrop that’s quenched investor appetite for safer plays. But to sustain its upturn, USDJPY would likely to make a clean break above resistance. Failure to do so could spark a technical turnaround for the Japanese currency.




A sense the Fed may stop short of a hawkish rate hike this week largely accounted for the dollar’s lackluster performance. The Fed is widely expected to raise rates by a quarter percentage point to 2.25%. Being one of its quarterly meetings, the Fed will also provide a slew of forecasts for the economy and interest rates. With growth headwinds threatening on the horizon, the Fed could sketch a more cautious outlook for monetary policy. U.S. growth could slow next year with fiscal support likely to fade while trade spats threaten to crimp consumer sentiment and spending. Higher U.S. borrowing rates could also slow growth.




The euro kept close to three-month highs thanks to hawkish inflation remarks Monday from Mario Draghi, the head of the ECB. Mr. Draghi voiced confidence in inflation picking up in the months ahead which euro bulls read as a cue that the central bank may be closer than previously thought to raising borrowing rates from crisis lows. The ECB’s top economist today attempt to water down Mr. Draghi’s comments. Still, the euro’s big picture appears to be brightening on the perception that the Fed is approaching the end of its tightening cycle while the ECB is set to lift rates next year, a scenario that would erode the dollar’s yield advantage.




Canada’s dollar was mostly stationary near one-week lows as nagging trade tensions overshadowed a spike in oil to new multimonth highs above $72. Most of the trade concerns stemmed from the ongoing spat between the world’s two biggest economies, the U.S. and China, respectively. U.S.-Canada trade relations are also in focus ahead of a U.S. deadline for a new Nafta deal by Oct. 1. Downside appears somewhat limited for the Canadian currency with market odds showing a more than 80% chance of a local rate hike next month.