Global Themes

New week, same struggles for the U.S. currency. In holiday light trade, the dollar fell to fresh five-month lows against the yen and was a quarter-percent weaker versus rivals from Europe and Canada. Markets remained in holiday mode Monday with much of Europe enjoying a long Easter weekend. The dollar has struggled over the past week as geopolitical tensions denominate and overshadow America’s mostly rosy economic narrative. Investors continue to shy away from risk on worries about Syria, North Korea and France’s presidential election which gets under way this weekend. Meanwhile, subdued U.S. data Friday on the consumer, the chief growth engine of the world’s biggest economy, solidified expectations of slower growth over the opening quarter of the year. This week’s data calendar features U.S. numbers on factory growth and housing, and late week data from Britain and Canada on retail sales and inflation, respectively.


The dollar remained camped near session lows in light holiday trade after the Empire State index showed slower than expected growth in April. Downside for the dollar should prove limited as the subcomponents of the data contained a silver lining, showing the strongest employment in nearly two years. The data, along with last week’s stronger weekly jobless claims, suggest that the slowdown in March hiring may have been an aberration, setting the stage for a rebound in April, and boding better for second quarter growth.


Sterling started the week with a gain as geopolitics continued to dominate and leave the dollar vulnerable. The pound survived U.K. data last week on inflation and the job market that were largely in line with forecasts and pointed to an economy running on most cylinders. The key data this week will be British retail sales on Friday. Forecasts calls for a 0.2 percent decline in March spending as rising inflation and Brexit uncertainty likely led to consumer caution.


The euro firmed in holiday-light trade with markets in Germany, France and Britain enjoying a long Easter weekend. Once back from break, though, the focus is likely to shift to a sensitive subject for the single currency: France’s presidential vote that gets under way Sunday. The two candidates that receive the most votes in the first-round vote on April 23 will face off in a decisive run off vote on May 7. Polls suggest far-right and Eurosceptic Marine Le Pen and centrist Emmanuel Macron would survive the first-round as square off next month in the run off. The euro would tend to be most vulnerable should Ms. Le Pen win the election, given the uncetainty she poses to the bloc. On the other hand, the euro could rally in relief if Mr. Macron becomes France’s next leader.


The loonie rose in holiday-subdued trade Monday though upside appeared limited with oil markets starting the week with a decline which pulled the price of crude below $53. The loonie outperformed last week when it rallied to six-week peaks, boosted by the Bank of Canada’s steady decision on interest rates, leaving them at 0.5 percent, while its forward guidance sounded a less dovish note. Canada’s chief risk event this week will be inflation data Friday that’s forecast to show headline prices moderated below the BOC’s 2 percent goal, a scenario that could leave the loonie vulnerable by keeping the door ajar to a rate cut.


The Aussie dollar flirted with two-week highs as stronger than expected Chinese growth overshadowed geopolitical tensions which tend to leave higher-yielders vulnerable. The world’s No. 2 economy grew 6.9 percent during the first quarter which was up a tick from the fourth quarter’s 6.8 percent pace. If sustained, faster Chinese growth would point to a pickup in demand for Australia’s commodity resource exports.

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