December 2018

Dec. 19, 2018 (Allthingsforex.com)  – The EUR is giving up gains following the Federal Reserve’s decision to raise rates by 0.25% today.

At the moment, the EUR is fluctuating around 1.1385.

With another two or three Fed rate hikes expected in 2019, while the European Central Bank keeps rates unchanged until next summer, we could see the USD maintaining its bullish stance into the first half of the new year.

Below is the official statement published by the FOMC earlier today:

“Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has remained low. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. The Committee judges that risks to the economic outlook are roughly balanced, but will continue to monitor global economic and financial developments and assess their implications for the economic outlook.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2‑1/2 percent.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Loretta J. Mester; and Randal K. Quarles.”

 


USA 

Dec. 13, 2018 (Western Union Business Solutions)  – The U.S. dollar was mostly flat as market attention remained focused on Europe. Britain’s pound held its chin above 20-month lows after Prime Minister Theresa May won a key confidence vote which bought the U.K. unit some breathing space. The euro steadied after the ECB left its borrowing rates unchanged and announced it would retire its monthly QE stimulus at month-end. Canada’s dollar was pinned near recent lows as weaker oil prices below $51 weighed on commodity assets. The FX market will look for a catalyst today in the ECB’s post-meeting news conference. The 19-nation central bank will also unveil fresh forecasts for growth over the coming year. Any tone that plays up greater economic uncertainty would strike a dovish chord that could tighten a lid on the euro.

 

USD

 

America’s economy flashed mixed signals that proved neither a buy or sell signal for the U.S. currency. The job market turned in another strong showing as weekly jobless claims fell more than expected to 206,000 in the last week, the lowest since the late 1960s. But import prices, a key gauge of inflation, took a 1.6% plunge, the most in over three years which offered evidence of the strong greenback putting downward pressure on inflation. Lower inflation backs the view of the Fed slowing the pace of rate hikes next year, a narrative that’s dollar-negative.

 

EUR

 

The euro weakened after the ECB left interest rates unchanged and announced the end of its monthly bond buying stimulus at year’s end. The bank’s forecasts for the economy were mixed and largely offset, expecting slightly lower growth this year but higher inflation. Mr. Draghi, the president of the ECB, reiterated that the area borrowing rates wouldn’t rise until after next summer, at the earliest. Mr. Draghi’s message mostly met markets’ dovish expectations and therefore hasn’t proven a catalyst for a meaningful euro decline.

 

GBP

 

Sterling held above 20-month lows but continued to nurse losses on the week, a day after most members of Theresa May’s Conservative Party maintained confidence in her leadership. The vote showed that 200 of the 317 members of the Conservative Party maintained their faith and confidence in Mrs. May’s leadership, despite the still-uncertain road ahead for Brexit. But the fact that so many of her colleagues (i.e. 117 or more than a third of the party) expressed no confidence in the premier, it did little in inspire optimism in Mrs. May’s Brexit bill eventually passing Parliament. As long as the risk of a hard, potentially economy-damaging Brexit remains on the table, the path of least resistance appears lower for the pound.

 

CAD

 

Canada’s dollar kept close to recent 1 ½ year lows as the price of oil, a key commodity that Canada produces and exports, shed a percent to $50. Investor appetite for risk also cooled, as evidenced by Wall Street futures pointing to a subdued start to trading. For the most part, USDCAD is pinned near mid-2017 peaks as global risks outweigh expectations for Canada to remain on a path of gradual interest rate rises.

Dec. 10, 2018 (Western Union Business Solutions)  – A mixed U.S. dollar soared to fresh highs against the politically-weakened U.K. pound. The dollar’s nearly 1% rise against sterling to fresh 1 ½ peaks translated into a general boost. Still, the euro pushed higher, taking out resistance to notch its highest in three weeks. Weaker oil below $52 weighed on Canada’s dollar. Sterling plunged on reports that embattled U.K. prime minister may postpone a crucial parliamentary vote on her unpopular Brexit deal. The news heightened political risk as it kept alive fears of Britain crashing out of the EU. The gain against the pound offered support to the dollar whose popularity has waned as mixed U.S. data has dampened expectations for the Federal Reserve to raise interest rates next year. Europe dominates market focus this week with the ECB mulling its final policy decision of the year Thursday. Next week it will be all about the Fed.

 

CAD

 

Canada’s dollar weakened after a jobs-inspired rally Friday. November proved a banner month for Canada when it hired a record number of jobs (more than 94K), a staggering amount that lowered the nation’s jobless rate by two notches to 5.6%, also an all-time best. The data kept the door cracked for the Bank of Canada to raise borrowing rates from 1.75% as soon as the first quarter of 2019. Still, one report doesn’t make a trend. Meanwhile, weaker oil prices below $52 added to the loonie’s softer start to the week.

 

EUR

The euro climbed to three-week highs as the single currency continued to benefit from markets’ dovish repricing of expectations for U.S. interest rates next year. The market largely concedes a Fed rate hike next week, but it wouldn’t be a total surprise if the Fed should get cold feet following cautious remarks from several policymakers. While stronger, the euro could see two-way volatility this week with the ECB issuing its final decision of the year on Thursday. No rate changes are expected but the central bank is likely to announce the end of its QE stimulus at year’s end. Any cautious commentary from ECB President Mario Draghi could weigh anew on the euro.

GBP

Sterling slid to June 2017 lows against the greenback on reports that Britain may postpone a parliamentary vote set for Tuesday on the prime minister’s Brexit plan amid a lack of support. Failure to pass the deal would raise already elevated political risk, a leading source of sterling weakness, and keep dire scenarios on the table such as but not limited to Britain crashing out of the EU without a deal, early elections, or a second Brexit referendum. Failure to pass the deal could also be the pound’s ticket substantially lower.

 

USD

 

The broadly weighted dollar index ticked higher, thanks mostly to its outperformance against sterling. Underlying dollar sentiment remained in the dumps after it depreciated nearly 1% last week for its worst week in more than three months. The dollar has fallen prey to markets’ dampened expectations for the Fed to raise rates next year. Fundamental keys for the buck will be gleaned in U.S. data this week on consumer prices and consumer spending, critical numbers that will add to the debate about whether the U.S. economy is in better or worse shape than many believe.

Dec. 7, 2018 (Western Union Business Solutions)  – The dollar slid in knee jerk fashion after U.S. hiring proved less than expected which gave traction to concerns of a moderating economy. America netted 155,000 jobs in November, below forecasts of 200,000. Unemployment and wage growth steadied at 3.7% and 3.1%, respectively. While job growth fell short of forecasts, the gain of more than 150,000 is still consistent with the labor market firing on most cylinders. The dollar looks set for more choppy trade as markets seek answers to whether the U.S. economy is stronger or weaker than it thinks.

 

JPY

 

The yen steadied after an overnight surge to one than one-month peaks. Sliding U.S. Treasury yields have diminished the dollar’s allure, easing pressure on lower yielding rivals like the yen. The Japanese currency is also benefiting from persistent trade war fears as risk averse shift toward traditional safe harbors. The yen should takes its cues today from Wall Street whose rebound after the U.S. jobs report should limit demand for safer bets.

 

EUR

The euro hovered toward the top of a confined range against the greenback ahead of America’s monthly jobs report. Reports that the Fed may adopt a slower, wait-and-see attitude toward interest rates next year weighed on the dollar to the benefit of rival currencies such as the euro. Still, the euro so far has lacked the momentum to push meaningfully higher amid mounting evidence of a slowing euro zone economy. Data today from Germany showed a surprise contraction in industrial orders in October. The ECB, which holds its final meeting of the year next week (Thu, Dec 13), could set the euro in motion. The bank is expected to announce the end of its QE stimulus at year-end. Any dovish tone that plays up economic headwinds would leave the euro vulnerable.

CAD

 

Canada’s dollar soared above 1 ½ year lows after a blockbuster jobs report kept the door ajar for the Bank of Canada to raise borrowing rates. Canada netted a massive 94,100 jobs in November, a robust amount that knocked unemployment two ticks lower to 5.6%, the lowest since 1976. The quality of the report was strong as most of the hiring came from the more meaningful full time jobs. The bullish jobs report bodes better for the BOC to raise borrowing rates during the first quarter of 2019 given its data dependent stance. While stronger, the loonie isn’t out of the woods and could see a meaningful swing if OPEC announces a cut in oil production. A forceful move that shores up sagging oil markets would risk a stronger recovery in the Canadian dollar.

Dec. 3, 2018 (Western Union Business Solutions)  – The U.S. dollar dove into December after a cooling in the U.S.-China trade war spurred a ferocious risk rally. The mostly weaker dollar sank against the Aussie and kiwi dollars and registered its deepest losses versus higher-yielding emerging markets. Canada’s dollar soared to two-week peaks as oil prices skyrocketed nearly 4% to just below $53. The U.S. and Chinese presidents agreed to a 90-day ceasefire in their trade feud, with the former vowing not to raise tariffs on Jan. 1, with the latter agreeing to buy more U.S. goods. The temporary truce was enough to unleash a strong global market rally at the safer buck’s expense. Scope for dollar weakness is likely to hinge on the strength of U.S. data this week that could cement a fourth interest rate hike from the Fed this year in a little over two weeks.

 

EUR

 

The euro ticked higher against the U.S. dollar though it ceded some strength, a reflection of investor unease over elevated political risk across the Continent. The market is cautiously hopeful that Rome and Brussels will reach a compromise in their budget feud. Still, recent data from Europe have been less than encouraging, which has raised questions about whether the ECB will be able to increase borrowing rates next year.

 

GBP

 

Sterling underperformed against the weaker U.S. dollar as Brexit developments weighed on sentiment. The U.K. Parliament on Dec. 11 is expected to vote on Prime Minister Theresa May’s Brexit proposal. Failure to pass Parliament could trigger a leadership challenge, a scenario that’s keeping pound-negative political uncertainty elevated. GBPUSD hit a five-week low, moving it closer to 2018 lows hit in August.

 

CAD

 

A 1% rally propelled the Canadian dollar to its highest in two weeks. Currencies with the closest links to global growth are faring the best today thanks to weekend progress on the U.S.-China trade war. The loonie added to its gains after oil prices soared nearly 4% to close to $53. Upside could prove limited for the loonie at least ahead of the Bank of Canada’s policy decision on Wednesday at 10 a.m. ET. Central bankers are expected to keep rates unchanged at 1.75% after data last week showed Canada’s economy slowed during the third quarter and went backwards in September.

 

ZAR

 

South Africa’s rand rallied more than 1% to its highest in nearly four months against the greenback. Other riskier, emerging markets also strengthened like currencies from Mexico, China and Turkey. Investor angst over the U.S.-China trade war has diminished. The rally for risky assets may not last long since the G20 only helped to allay trade tensions, not eliminate them altogether.

 

USD

 

The dollar Monday was mostly weaker with its biggest losses coming against peers with close ties to global growth. The dollar has benefited as a safe bet from the U.S.-China trade war so the cooling in tensions has led to some unwinding of those positions. The dollar’s weaker tone follows its performance last week when it lost ground on the perception the Fed may shift to a slower pace of rate rises given that policy in near a neutral level. Key events for the buck this week will be congressional testimony on the U.S. economy by the Fed chairman Wednesday and Friday when America’s November employment report is due. Any softness in data would further dampen confidence in U.S. rate hikes next year and leave the dollar vulnerable.