October 11 2018

Oct. 11, 2018 (Western Union Business Solutions) – A subdued U.S. dollar slipped to one-week lows against the euro and to its weakest in three against the yen and sterling. However, the big selloff on Wall Street this week amid concerns that a sharp spike in U.S. bond yields could harm the world economy boosted the buck against commodity peers from Canada and Australia. The loonie slumped to two-week lows while the Aussie dollar kept near a 2 ½ year trough. The dollar tends to fare its best when markets slide and investors duck for cover in safer bets. But the buck has largely sat out the latest market meltdown as it’s helped coax Treasury yields down from multiyear peaks while signs of diminishing political headwinds in Europe buoyed the euro and sterling. While a tentative calm returned Thursday with U.S. bond yields down and riskier emerging market currencies higher, caution is likely to persist, particularly ahead of news today on U.S. inflation.

 

USD

 

Softer than expected U.S. data pushed the dollar to session lows. The rattled stock market may take comfort from the latest U.S. inflation data as consumer prices rose at an annual rate of 2.3% in September, below the last reading of 2.7%, and under forecasts of 2.4%. Less volatile core consumer inflation steadied at 2.2%. Weekly jobless claims rose more than expected to a still low 214,000. While inflation remains relatively take, its at risk of climbing given low unemployment and the strong economy. Still, until meaningfully higher inflation materializes dollar gains could be tougher to sustain beyond the near-term as benign price growth can reduce pressure on the Fed to raise rates.

 

JPY

 

The yen was among the winners of the global stock meltdown that started on Wall Street. The yen shines its brightest when the global outlook dims as risk-skittish investors seek traditional safe harbors such as the Japanese currency. The stampede to safety momentarily knocked USDJPY below a key floor that had held since mid-September. The longer volatility sticks around, the better the yen should fare over the near term.

 

GBP

 

Sterling rallied to three-week highs on signs that Britain and the EU might be on the brink of clinching a Brexit treaty over coming days. The pound continues to move in fits and starts in response to Brexit headlines. A securing of a Brexit agreement would represent a big step forward in Britain’s bid to leave the 28-country EU in March 2019. A trade deal would also help to instill some semblance of certainty for U.K. businesses, potentially easing a major headwind on Britain’s economy.

 

EUR

 

The euro scored one-week highs against the greenback, boosted by a reduction in political uncertainty in Italy and Britain. The euro managed a technical victory after it closed above a key support which offered scope for stabilization for a currency that’s fallen to seven-week lows. The euro got a lift from Italy’s economy minister who intends to win back market confidence in its handling of its budget battle with the EU. Italy’s budget crisis remains fluid, suggesting the euro isn’t out of the woods. The euro also rode the U.K. pound’s coattails higher as expectations grow for Britain and the EU to agree on a Brexit treaty.

 

CAD

 

Canada’s dollar tumbled to two-week lows as global growth fears flared and oil prices moderated. The price of crude was a percent lower to below $73 Thursday which depressed the value of commodity-oriented assets. Concerns about skyrocketing bond yields and no end in sight for the U.S.-China trade war have overshadowed Canada’s sturdy economic fundamentals and expectations for the Bank of Canada to raise borrowing rates for a third time this year on Oct. 24. Still, Canada’s bright fundamentals could help slow the loonie’s pace of decline.


USA