Currency Market Analysis
Feb 18, 2020 | Currency Market Analysis
After a holiday respite, the U.S. dollar Tuesday scaled new highs as a darkening global outlook brightened its prospects. Though down against the yen and sterling, the greenback flirted with three-year highs against the euro and rose against Canada and other commodity currencies. Evidence of the toll the coronavirus is taking on global growth weighed on emerging markets. The dollar is firing on all cylinders these days as China’s deadly virus starts to impact global data and the U.S. economy appears in a good place to weather the uncertainty. Relatively high U.S. yields are also playing into dollar outperformance. Markets haven been rattled anew this week as shockingly bad data from Japan and Germany, the world’s Nos. 3 and 4 economies, fanned recession fears. Japan’s economy contracted more than 6% last quarter, while German investor confidence plummeted in February from multiyear highs in January.
Sterling seesawed higher Tuesday after a tweet from Britian’s new finance chief bolstered expectations for a significant dose of economy-boosting fiscal stimulus in the coming weeks. After a cabinet reshuffle last week, doubts had surfaced about whether Britain would remain on track to deliver a budget with meaningful fiscal support next month aimed at putting Britain on a stronger growth path. Rishi Sunak today tweeted that he was readying the budget for Mar. 11, signaling that it would help to “unleash the country’s potential.”
Canada’s dollar fell from more than two week highs as global risk aversion and weaker oil markets conspired to weigh it down. The loonie Monday had climbed to Jan. 31 highs during holiday trade. But evidence of the coronavirus taking a bite out of global growth squeezed markets, pushing oil 2% below its Friday close above $52. Canada’s economic events this week arrive with a Wednesday reading on inflation and retail sales Friday – numbers expected to sway the debate for a potential rate cut this year.
The euro tumbled to new lows after a sharper than expected deterioration in German investor optimism underscored recession risks in Europe’s largest economy. Germany’s ZEW survey slid to 8.7 in February from 26.7 in January which was the highest in four years. The scale of the erosion in confidence potentially sets the stage from similarly poor results Friday when Germany and the euro zone issue preliminary PMI surveys.
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