December 10 2018

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.


USA 

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.