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New Year Begins With Sigh of Relief

Matt Eidinger January 2, 2020

One decade has ended, and another has begun with a big sigh of relief for foreign exchange markets.

The US dollar has fallen notably against most major currencies – including nearly a full cent against its northern comrade, the loonie – over the last two days  after news that US President Donald Trump would sign what has been dubbed “phase 1” of a Chinese-US trade agreement on January 15 in the White House. The trade-weighted dollar index (DXY) has moved down almost a full percentage point since this time last week.

Earlier this morning, economic data from the US Department of Labor (DOL) indicated the US labor market finished 2019 on a strong note. Initial claims for unemployment insurance fell by 2,000 to 222,000 during the last full week of 2019 – matching market expectations.

During the same time period, the less volatile four-week moving average rose to 233,250 – the highest level in nearly two years and reflective of higher weekly claims numbers from early December. States with the greatest increases in new claims were Missouri, Iowa, and California as a result of layoffs across a wide variety of industries.

Continuing claims rose a modest 5,000 to 1,728,000 for the week ending December 21, 2019.

As of 8:30 am, the US dollar held steady against most major currencies – neither moving up nor down from levels witnessed near the end of 2019.

Today’s market news comes amidst a strong finish to 2019 – and for that matter, the entire 2010s decade. In 2010 major economies were in trouble, interest rates were at record lows and stock indexes were in bad shape as a result of the Great Recession. What followed was the longest stretch of low interest rates ever in the United States and Canada and one of the longest bull markets for stocks ever.

As we begin the next decade, the US Federal Reserve is on pause once more. After cutting interest rates by three quarter points in 2019, the central bank held the target range for the fed funds rate  1.5% to 1.75% in December. According to data on Fed futures from the CME Group, markets are betting that interest rate moves – up or down – will be entirely absent this year.

At present, market participants are still very cognizant of the risks that prompted the 2008 financial crisis, and the past ten years have largely been a response to those risks. Low – and sometimes even negative – interest rates and yields became the norm; slow, but stable economic growth dominated business headlines and unemployment rates tested the level of full employment.

As we begin the new decade, the question becomes more insistent – “How long can this party last?”

Matthew Eidinger
Fintech Specialist, Dealing Operations

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