Global Themes

A generally lethargic U.S. currency slipped to three- and six-week lows against the yen and euro, still in a central bank-induced funk. Ahead of last week’s Federal Reserve meeting, the dollar had been flying higher in anticipation of the bank delivering another quarter-point interest rate hike. The Fed delivered, lifting the range of its benchmark rate to 0.75 percent to 1 percent. But the Fed maintained it would proceed slowly with future rate increases, penciling in only a pair of hikes over the balance of the year. Meanwhile, market forces have contributed to the dollar’s lackluster performance, with global growth showing signs of broadening and some European officials openly contemplating higher lending rates. Dollar struggles could persist until the Fed signals its next rate hike which could take a few months. A host of Fed officials speak this week, including Chair Janet Yellen on Thursday, remarks that could be dollar-impactful.


The euro rose to six-week highs against the dollar, as the U.S. currency remained mired in a Fed-induced funk. The Fed raised rates last week, lifting the dollar in the run up. But the Fed failed to raise its forecast for the future pace of rate increases, which disappointed a large contingent of dollar bulls. European political risk abated somewhat but remained elevated ahead of France’s first presidential debate set for later today.


Sterling climbed to three-week highs but remained on vulnerable ground with Brexit at the forefront for the U.K. currency. Any day, the British government is expected to submit its official EU resignation, kicking off a two-year period in which London negotiates economy-impacting trade terms with Brussels. Britain releases key inflation data Tuesday that’s forecast to top the central bank’s two percent goal. Any overshoot would risk intensifying calls for an inflation-fighting rate hike, a scenario that could strengthen the pound.


The loonie steadied near three-week peaks against its U.S. counterpart. Looming in the week ahead for the loonie will be big ticket Canadian data on consumer spending Tuesday and inflation Friday. Outcomes consistent with an improving economic backdrop in Canada would risk USDCAD moving further away from recent 2017 highs above 1.35.


The dollar continued to flounder in the wake of last week’s U.S. rate hike which was widely expected and was accompanied by rate guidance that stuck to a leisurely pace of future rate increases. How much of a setback the Fed represents for the buck could hinge on the perceived timing of the next U.S rate rise. Markets see almost no chance of a rate hike at the next Fed gathering in May but about an even chance of a move in June. The Fed will be top of mind again for the dollar this week with a host of officials due to speak, including boss Yellen Thursday. A weekend G20 meeting in Germany didn’t help the dollar as finance officials were at loggerheads over free trade to protectionism matters.

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