OVERNIGHT MARKET SUMMARY
The U.S. dollar index was largely steady in a quiet overnight trading session but remains down roughly a half a percent on the week. While the greenback managed to hit its highest level against the yen since late February, it continued to struggle against its higher yielding and riskier rivals. This week’s important U.S. inflation reports did little to meaningfully drive the direction of global financial markets. Instead, traders took their cue from the ebb and flow of overall risk appetite this week. Higher yielding, riskier and trade-sensitive currencies like the Aussie, the New Zealand dollar and the Canadian dollar, among others, all fared particularly well this week as concerns about a looming trade war and imminent Western military strikes in Syria subsided.
The greenback racked up its best performance against the Japanese yen this week, hitting its best level in almost seven weeks overnight, thanks in large part to moderating worries about a global trade war and easing geopolitical fears. The safe-haven yen remains one of the best barometers of overall investor risk appetite, rising during periods of increased concerns and falling when investors become confident enough to seek higher returns in riskier assets.
The euro was little moved against the greenback overnight, trading around the middle of the week’s range. The single currency fell from a two-week high on Wednesday after an ECB spokesperson backtracked some hawkish remarks from a policymaker the previous session and ECB meeting minutes from March revealed that Governing Council members were increasingly concerned about a looming trade war and the possible impact of a strong euro on their inflation goals.
The Canadian dollar was one of this week’s biggest winners, hitting its highest level in seven weeks against the greenback amid a strong rally in crude oil and thanks to moderating worries about a looming trade war. Optimism about the NAFTA negotiations and an upbeat business survey from the BOC all helped support the loonie’s resurgent tone this week.
The Aussie, which tends to be highly sensitive to issues surrounding global trade and overall investor risk appetite, benefited from the reduction in worries about a looming trade war between the U.S. and China. The Australian dollar winds down the week near its best level in a month, up over two percent against the dollar since Monday.
USD: The dollar index was mostly steady overnight but nursed losses against many of its major rivals for the week. The greenback’s heavier tone this week came mostly against its riskier and higher yielding rivals, thanks to a reduction in overall concerns about a looming trade war with China and signs that a possible Western military strike against the Assad regime in Syria may not be as imminent as originally thought. Economic data this week showing a larger than expected rise in wholesale inflation and as-expected increases in core consumer inflation were mostly overshadowed by the ebb and flow of overall risk appetite and investor sentiment in global markets. Next week, investors will focus on U.S. retail sales data for March as well as the fluid trade and geopolitical backdrops.
JPY: The safe-haven yen was pinned near its lowest level in seven weeks against the greenback his week, struggling due to an overall improvement in investor risk appetite. A conciliatory speech by China’s president on the topic of trade and signs that a Western military strike against Syria may not be imminent all supported risk appetite in global markets and encouraged investors to cautiously test riskier waters outside of the safe harbor of yen (and Swiss franc) assets.
EUR: The euro winds the week down around the middle of its recent range against the greenback. The single currency was knocked off of a two-week high against the greenback after the ECB clarified that hawkish comments from a key policymaker on Tuesday were his own and did not represent the view of the broader Governing Council. The euro’s defensive tone was maintained as the ECB’s minutes from its early March meeting showed that officials were becoming more concerned about a global trade war and the strength of the euro. Next week, investors will look to the closely watched German ZEW economic forecast, which has been trending lower, for direction.
GBP: Sterling rose to its best level against the greenback since late January this week, despite mixed economic data showing a likely downshift in overall activity in the first quarter. Investors still see recent positive developments on the Brexit as supporting the U.K.’s economic outlook and likely driving the Bank of England to hike lending rates twice this year. Next week, investors will focus on key U.K. economic data, including the nation’s employment report. The wage component of the jobs figure will be important in helping markets fine-tune expectations for BOE rate hikes this year.
CAD: The stars aligned for the loonie this week, with a jump in crude oil to its highest level since late 2014, moderating worries about a looming trade war and a surprisingly upbeat business survey from the Bank of Canada all driving the CAD to a seven-week high. A busy calendar next week in Canada will bring the BOC’s rate decision on Wednesday (no change expected) and key inflation and retail sales figures on Friday.
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