Global overview
The U.S. dollar hit the ground running as it raced to fresh multimonth highs after the long holiday weekend. Broad gains propelled the U.S. dollar index to three-month highs while the Canadian dollar tumbled to five-month lows above 1.36. The euro and sterling both slipped to 12-week lows against their U.S. counterpart. Global markets are in risk-off mode following downbeat surveys from China and Europe. The greenback is riding a seven-week winning streak, a rally partly driven by fading expectations for the U.S. central bank to cut interest rates from 22-year highs above 5% anytime soon. The buck is also benefitting as a safe harbor from worries about a moderating world economy. Overnight data showed that China’s services sector grew at the slowest pace so far in 2023, while euro zone services activity contracted more than expected in August. A spotlight this week will shine brightly on Canada whose central bank is expected to keep lending rates steady at 5% on Wednesday. Canada also issues its August jobs report with unemployment expected to rise for the fourth straight month. The U.S. publishes services growth and weekly jobless claims on Wednesday and Thursday, respectively.
Euro hits a mid-June bottom
A 0.5% slide Tuesday drove the euro to 12-week lows against the greenback around 1.0730. Mounting signs of a slowing euro zone economy continue to take a toll on the euro with it considered a close call whether the ECB will raise rates for a 10th straight time in September as it grapples with elevated inflation. The ECB has raised rates nine consecutive times to 3.75%, the highest in 22 years. Key for the euro this week will be the fate of German factory data on Wednesday and Thursday with contraction in the cards for both surveys.
Sterling falls to 12-week lows
Sterling tumbled more than 0.5% to below 1.26 as risk sentiment weakened and spurred a flight to safety in the greenback. The pound had its fall cushioned a bit by news that UK services activity enjoyed a modest upgrade in August to a smaller contraction of 49.5 from an initial estimate of 48.7 Nevertheless, the weak performance highlighted the UK economy’s growing sensitivity to higher borrowing rates that are expected to increase further from 5.25%, the highest in 15 years, to help it tame the worst inflation (6.8%) among major economies.
Loonie sinks to 5-month low
Worries about sputtering global growth rattled commodity-linked currencies, sending Canada’s dollar to late-March low (1.3669). The loonie halted a six-week slide last week but embarking on a winning streak looks challenging after shock news Friday that Canada’s economy contracted 0.2% during the second quarter. The Bank of Canada is expected to hold its benchmark lending rate steady at 5%, the highest in 22 years, on Wednesday. Key for the loonie will be how policymakers characterize the outlook in the facing of growing signs of weakening economy. Any hint that rate cuts may not lurk as far around the bend as previously thought could spell another leg lower for the C$.
Dollar rallies for 7th straight week
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: Sep 4-8
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
