As the first full week of February begins, the dollar (USD) has continued its climb away from January lows. The dollar is now 0.6% up from its session low last week, which came after the surprise Fed announcement that it no longer expected to hike interest rates during 2019. Forward guidance from last year had indicated two 0.25% increases this year with the first expected to be announced last week. The U-turn blindsided forex market participants and led to an immediate softening of USD.
However, it looks as though the broader based long term bull market for the dollar will not be easily derailed. Strong January jobs figures and the underlying macro-economic strength of the U.S. economy could be enough to maintain a bullish dollar into the months ahead.
Canada’s dollar has also had a strong start to the year, recording its best January since 1971. The ‘loonie’ strengthened by 3.9% to lock in the oil-sensitive currency’s strongest monthly return since June 2017. Crude oil prices have rallied from their late 2018 slump, benefitting the loonie. So far Canada’s currency is the best performing of all those represented by the G10 group of economies. Unlike the Fed, the Bank of Canada has maintained forward guidance that it expects to make further interest rate hikes this year. Positive developments in U.S.-China trade talks have also boosted loonie sentiment. As a major commodities exporter, Canada’s economy is more exposed than most to any major Chinese economic slowdown.
China’s renminbi also had a very strong January and recorded its highest gains in a year. However, disappointing manufacturing data released on Friday got the renminbi off to a bad start for February. The ‘onshore’ renminbi, which is constrained within a 2% radius of a daily midpoint set by the People’s Bank of China fell 0.5% on Friday with the offshore renminbi 0.6% down.
Sterling was the other significant faller among the majors. It has slid back towards the $1.30 level as a result of hopes that Westminster would agree a no deal Brexit is not an option on the table failing to materialise. On Monday GBP has softened by around 0.2% to $1.3052. Pound sterling’s recent Brexit-based volatility is making it a favourite with forex traders, even if it’s not always easy to forecast what direction it will take. Markets expect a rally if and when ‘no deal’ Brexit is ruled out.