February 2019

Feb. 11, 2019 (Western Union Business Solutions)  – Elevated global risks kept the safer U.S. dollar well supported. Extending an upswing, the trade-weighted Dollar Index climbed to early January highs thanks to across the board gains versus rivals from Europe, Canada and emerging markets. The Swiss currency was a notable mover as it depreciated by nearly a franc in a matter of minutes overnight that knocked the Alpine unit to mid-November lows. The dollar continues to find a supporting cast from worries about a slowing world economy and uncertainty related to Brexit and U.S.-China trade talks. The buck also made headway versus the yen which fell to fresh 2019 lows. The dollar wavered weeks ago after the Fed turned decidedly cautious and closed the door to imminent interest rate hikes. The dollar has since gained traction given the lack of an alternative to the greenback which remains well supported by solid fundamentals which contrast slowing growth overseas.

 

GBP

 

Uninspiring U.K. data drove sterling toward recent multiweek lows against its American counterpart. As expected, Britain’s economy slowed to a 0.2% pace during the fourth quarter from a 0.6% rate in Q3. Data on trade and factory growth underwhelmed forecasts which offered evidence of how Brexit uncertainty has squeezed the economy. Look for the coming week to shed some light on the next steps in the Brexit process with a midweek update to Parliament by the prime minister. Data Friday is forecast to show U.K. retail sales inched up after a December plunge.

 

EUR

The euro slid to a Jan. 24 low against the greenback, its weakest in more than two weeks. Europe’s faltering economy will stay in the spotlight this week which could leave the single currency vulnerable. Thursday will be critically important with numbers due on German and euro zone growth during the final quarter of 2018. Top economy Germany already has one foot in recession after it contracted by 0.2 during the third quarter. Odds are seemingly on Germany’s side that it may dodge recession with fourth quarter growth expected up by a scant 0.1%. Any disappointing data could potentially be the euro’s ticket lower.

CAD

 

Canada’s dollar was broadly flat though weaker oil prices, if sustained, could leave the commodity-driven currency at risk in the day ahead. The loonie pared weekly declines Friday after bullish Canadian jobs data kept a local interest rate hike in the conversation. Canada netted more than 60K jobs last month, an amount about 10 times stronger than expected. Despite the sharp spike in hiring for the second time in three months, money markets still see a relatively slim chance (i.e. around 20%) of a rate hike from 1.75% by year-end.


USA 

Feb. 1, 2019 (Western Union Business Solutions)  – The calm before America’s jobs report this morning helped the greenback steady above multiweek lows. Ahead of the month’s most important look at the health of the labor market, the U.S. dollar softened against the euro but managed a gain versus counterparts from Japan, Britain and Canada. Sentiment deteriorated for the dollar in January after the Fed left borrowing rates unchanged and sketched a cautious outlook for growth that at best suggested steady rates over the foreseeable future and at worst opened the door to a potential rate cut by year-end. America’s government shutdown likely resulted in slower hiring last month. Forecasts call for cooler job growth of around 165,000 for January, down from December’s blistering pace of more than 300,000. The data will offer evidence of how much of a headwind the shutdown had on the wider economy.

 

EUR

 

The euro held within earshot of three-week highs against the greenback, defying more downbeat data from the bloc that argued against the ECB changing course on stimulus. Few signs of a bottom for Europe’s slowing economy in data showing German factory growth contracted and euro zone inflation moderated to a 1.4% increase, a move further away from the ECB’s near 2% goal. The fact that core inflation unexpectedly improved by a tick to 1.1% helped to limit the blow to the single currency.

 

USD

 

Surprisingly robust U.S. job growth helped the dollar chip away at its Fed-induced losses. While the shutdown pushed unemployment to a seven-month high of 4% in January, from 3.9% in December, it had no discernable impact on hiring as the economy added a stellar 304,000 jobs. Wage growth slowed to 3.2% from 3.3%. The market will likely take the data with a grain of salt as it could overstate some of the strength in the economy that faces crosscurrents from abroad. The data suggests it may be premature yet to price in bets on lower U.S. interest rates this year. On balance, the data is likely to have a limited impact on the buck, leaving its broader bias at the mercy of the Fed’s dovish turn.

 

GBP

 

Sterling sank to one-week lows after U.K. factory data underwhelmed and offered evidence of a fragile economic underbelly ahead of Brexit. Britain’s factory sector grew at the slowest pace in years last month, highlighting how Brexit uncertainty has weighed on manufacturing sentiment. The disappointing data spurred some pound selling after it logged its best month in more than a year when GBUSD appreciated by 3%.