Last Week’s FX and Economy Summary Jan 13, 2020

US-Iran fears ease

After a brief recovery following the initial US strike against Iran Commander Soleimani, fear increased once again following reports that Iran had targeted missile strikes on US forces based in Iraqi airbases. There was a fresh surge in demand for the Japanese yen and oil prices surged.

Tensions declined quickly, however, as Iran suggested that the immediate retaliation phase had ended while the US indicated no further action at this stage. Although underlying tensions remained high, an easing of fear was the dominant market factor.

Risk appetite recovered and there was a dip in demand for defensive assets such as the Japanese yen and gold. Oil prices also reversed gains to trade sharply lower on the week. 

Trade signing on track

Comments from the US and Chinese officials indicated that signing of the US-China trade deal was still on track for January 15th which helped underpin global risk sentiment to some extent. 


The ADP employment report registered an increase in private-sector payrolls of 202,000 for December, above market expectations of 160,000

The December non-farm payrolls increase, however, was below consensus forecasts of 165,000 at 145,000 and there was a small downward revision to November to 256,000 from the 266,000 reported previously. Unemployment held at 3.5%, in line with expectations, while average hourly earnings increased 0.1% which cut annual growth to 2.9% from 3.1%. 

The data overall was weaker than expected and the slowdown in wages growth will maintain expectations of subdued inflation pressures. 

Overall, there were strong expectations that the Federal Reserve would hold interest rates steady in the short term. Evidence of low inflation pressures will certainty keep any increase in rates off the agenda in the short term.

Elsewhere, the ISM business survey for services improved for December which offset weak manufacturing data released the previous week.


There was further choppy Sterling trading during the week. The UK currency was undermined by cautious remarks from Bank of England Governor Carney who suggested that a cut in interest rates was a possibility given that the bank’s expectations of a stronger economy this year was no assured

Two other Bank of England members also suggested that they would support an interest rate cut if there is no near-term improvement in economic data which capped potential Sterling support.

In contrast, business surveys offered some encouragement with indications that confidence had increased notably following the General Election as uncertainty eased. If there is evidence of recovery, a rate cut is likely to be taken off the table.


Euro-zone economic data had little impact on the headline and core inflation rates at 1.3%. There was no shift in expectations of very low-interest rates which limited Euro support, although hopes for a recovery this year did push German yields higher during the week.


Canadian employment increased over 35,000 for December following the shocking decline of over 70,000 the previous month. Bank of Canada Governor Poloz was also relatively optimistic and the Canadian dollar recovered from 2-week lows.

The Australian dollar was undermined by fears that the economy would be damaged by extensive and destructive wildfires. Stronger data releases provided an element of relief later in the week with recovery from 3-week lows.

Tim Clayton

Tim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics.

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