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Currency Market Analysis

Feb 21, 2020 | Currency Market Analysis

Global Themes

The greenback, the year’s strongest currency, ticked below 2017 highs after data from Europe topped forecasts and allayed recession fears. The euro rose above 2017 lows while the fastest U.K. factory growth in months lifted the pound above three-month lows. The dollar taking a breather eased pressure on the yen which rose above 10-month lows. German factory growth contracted in February but at a surprisingly slower pace. Manufacturing in the euro zone also beat forecasts. The data, coupled with the dollar encountering a technical top, bought rival currencies a respite. Still, decidedly bearish sentiment that’s engulfed the euro threatens to undercut rallies and leave it vulnerable to renewed selling pressure. Canada’s dollar steadied ahead of important domestic data on retail sales. America’s housing market today will be in focus with a report on existing home sales.

GBP

Sterling was higher on the day but lower for the week as it remained pitted in a tug of war between signs of economic resilience and trepidation over trade talks with the EU. The former carried the day, as the strongest U.K. manufacturing growth in 10 months dovetailed with encouraging retail sales and higher inflation that together dampened chances of a local rate cut. The pound has shed more than a cent this week, a reflection of doubts about London and Brussels reaching a trade agreement by year-end.

CAD

Canada’s dollar was mostly flat, mirroring the outcome of a report on consumer spending. Canadian retail sales registered a zero, or unchanged, reading in December which defied forecasts of a modest increase. The data cemented expectations for Canada’s fourth quarter growth report, due Feb. 28, to show marked weakness. The data also makes a Bank of Canada rate cut this year more likely. Loonie sentiment remains fragile, particularly with oil down 1.5% and barely above $53.

EUR

For a change, the euro received an economic lift that pulled it slightly above 2017 lows. Factory PMIs from Germany and the euro zone topped forecasts which for now tempered fears of a looming recession. Preliminary data showed that Germany’s manufacturing PMI rose to 47.8 in February compared to 45.3 in January and forecasts of 44.8. The data could buy the euro more time above key support. But for the euro to catch a meaningful reprieve, data Monday on German business confidence also would need to assuage recession fears.


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