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Currency Market Analysis

Feb 20, 2020 | Currency Market Analysis

Global Themes

Safe haven buying catapulted the U.S. dollar to fresh highs against a wide swath of rivals. The yen and sterling sank to multimonth lows, the euro notched another April 2017 bottom, while the Aussie dollar hit a decade-plus trough. Rising concerns about global growth have unleashed a material rise in the greenback whose trade-weighted value climbed to April 2017 highs. Japan and Germany are the face of growing recession risks following a run of weak data. Japanese data this week suggested the world’s third biggest economy might already be in recession. Worries are also on rise about the health of the world’s No. 4 economy after a plunge in German investor morale this week potentially heralds more bad news over the coming days and weeks. Friday looms large for the euro when Europe publishes fresh data on factory and services growth.


The pound stumbled to its lowest level in nearly three months as uncertainty over U.K.-EU trade talks overshadowed solid British data that suggested a lower likelihood of the Bank of England slashing lending rates. British inflation rose to six-month highs closer to 2%, while consumers went on a shopping spree. For the pound, the spotlight instead is on tough talk between London and Brussels that’s stoked pessimism over prospects of a long term trade agreement being reached by year-end.


The loonie squandered February highs as the greenback broadly outperformed amid rising worries about global growth. USDCAD is keeping to the range, however, with upside capped by higher oil markets with crude above $54. The loonie has found support recently from solid domestic data that suggested an elevated bar for a local rate cut.


The Aussie dollar plummeted to 11-year lows after a bigger than expected jump in unemployment to 5.3% in January led many to pull forward expectations of a local rate cut to as soon as the spring. The Aussie is also being pressured by worries about China’s virus crimping global trade and thus demand for Australia’s prized resource exports.


Europe’s weak outlook led the euro to new lows overnight when it hit another April 2017 bottom against the greenback. The euro slide could abate a bit today ahead of influential data over the coming days that will shed light on the extent of the slowdown in the German economy, the bloc’s largest and the world’s fourth biggest. The risk appears to the downside for the data following bad news this week on German investor confidence. The euro is currently sitting at key support, a potential crossroads. 

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