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Currency Market Analysis

Oct 30, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar inched off one-month peaks but its bullish glow had it on track for its best week in a month. The buck held aloft near two-week peaks versus sterling and its strongest in a month against the ECB-dented euro and the oil-whacked loonie. The dollar dominated this week as soaring Covid cases fanned fears of the global economy descending into a double dip recession, with uncertainty heightened ahead of America’s presidential vote next week. The euro plunged to late September lows after the ECB sounded a dire warning about the bloc’s growth prospects signaled more stimulus was on the way. Oil’s nearly 10% swoon this week was a big factor behind the Canadian dollar’s worst week since April. This week’s fireworks may be just the tip of the iceberg ahead of next week’s U.S. presidential election, Fed decision Thursday, and America’s October employment report Friday.

USD

The dollar hovered just below one-month highs following mixed news on the U.S. economy. Personal income and spending proved better forecast, rising 0.9% and 1.4%, respectively, compared to forecasts of 0.4% and 1.0%. But core inflation underwhelmed with a 1.5% annual increase versus forecasts of 1.7%. A slowing economy and rising Covid infections doesn’t bode well for sustained consumer spending. Nevertheless, the dollar stands to benefit from global growth fears and uncertainty over the outcome and aftermath of America’s Nov. 3 presidential election.

GBP

Sterling rebounded from two-week lows as markets steadied after an overnight rout. The pound was still on track for a losing week against the greenback amid heightened concerns about soaring Covid infections slamming the brakes on the global recovery. Still alive hopes of an orderly Brexit by year-end helped to limit swings to the downside in sterling. Sterling faces significant event risks next week in America’s election and a Bank of England decision on Nov. 5, with expectations on the rise for policymakers to take action in the face of slowing growth and rising unemployment.

EUR

A record rise in euro zone growth last quarter helped the euro steady above one-month lows. The euro steadied off late September lows after data showed the euro zone economy expanded at a record 12.7% rate in the third quarter, which compared to forecasts of 9.4%, and second quarter’s minus 11.8%. While sizzling, the bloc’s vital signs are flickering anew as other surveys showed inflation stuck below zero (-0.3%) while unemployment steadied at an elevated 8.3%. The data validated the ECB’s fears of the bloc’s economy losing rapid momentum and its unambiguous signal of more stimulus to come in December.

CAD

The loonie inched above one-month lows thanks to stronger than expected area growth. Canada’s economy expanded 1.2% in August, topping expectations of 0.9%, while July enjoyed a modest upgrade to 3.1%. While encouraging, the outlook still calls for slower growth ahead as Canada forecast September GDP of 0.7%. Canada’s dollar has shed about 1.4% this week, putting it on track for its worst performance since April.


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