Global Themes

A mostly firmer U.S. dollar Friday was on track for a tiny weekly loss. The dollar enjoyed a one-month high this week only to lose ground as political forces continued to sap strength and undercut rallies. Signs of solid U.S. economic fundamentals and expectations for the Federal Reserve to raise borrowing rates over the short run continue to underpin the dollar and limit bouts of weakness. Still, the Trump administration’s difficulties at staffing a cabinet have checked confidence in Washington’s ability to implement a pro-growth agenda that’s been credited with the dollar’s post-election rally to 14-year highs. While the greenback kept to a range, sterling slipped after surprisingly weak news on the U.K. consumer showed a crack forming in the British economy. Global stock weakness boosted the safe haven yen but catalyzed weakness in the euro, loonie and Aussie dollar.


The dollar was little changed Friday and set for a week of limited fluctuation as weakness from political forces was mostly offset by support from brightening prospects for U.S. growth and higher lending rates. The dollar bolted to one-month highs after Janet Yellen said a rate hike could be right around the corner, providing the economy stays on track. The world’s top economy appears rate hike ready thanks to bullish news this week on inflation, retail sales and the Philly Fed index surging in spectacular fashion to 3-decade highs. Still, the needle hasn’t materially moved in favor of an imminent U.S. rate hike with markets forecasting a 1 in 5 chance of a move at the Fed’s mid-March meeting.


The euro was on track to squeak by with a weekly gain against the dollar as U.S. political uncertainty for now overshadowed Europe’s precarious backdrop for politics ahead of France’s looming presidential election in the spring. The euro’s outperformance amid a highly uncertain political landscape could leave it vulnerable to selling ahead of the long holiday weekend. We’ll be open Monday but Wall Street will be closed Feb 20 for Presidents’ Day.


Sterling descended after the U.K. economy produced a third gloomy report on the state of the consumer in as many months, which offered a clear sign of accelerating inflation choking a key source of growth. Retail sales were down 0.3 percent in January, wrong-footing forecasts of a 0.9 percent increase. Moreover, the December report was revised to a darker shade of red. Britain’s economy turned in a worrisome week as measures of inflation, while elevated, undershoot forecasts and bolstered views of low U.K. interest rates for longer, tarnishing sterling’s appeal to yield chasers.


The loonie drifted below 10-day peaks as oil fell by a half percent to $53 and downbeat news on the U.K. consumer cast a shadow over the global growth outlook, pushing investors into the safe U.S. and Japanese currencies. The loonie was set for a flat week with losses held in check by Justin Trudeau’s visit to Washington. Canada’s prime minister talked trade with President Trump who indicated any policy change with its northern neighbor would be a ‘tweak,’ suggesting no material impact on Canada’s economy.

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