Currency Market Analysis

Feb 25, 2020 | Currency Market Analysis

Global Themes

U.S. dollar sentiment wavered the day after Wall Street’s biggest plunge in years. The euro slipped while risk-cautious investors favored safe bets like the Japanese and Swiss currencies. Sterling jumped and steadier oil markets supported the Canadian dollar. Uncertainty remains high over the coronavirus whose spread to Europe and the Middle East from Asia has dimmed an already shaky outlook for global growth. The potential for the economic fallout from the virus to wash up on U.S. shores has cooled the dollar’s rally to three-year peaks by knocking Treasury yields to multiyear lows and raising expectations for the Federal Reserve to deliver more interest rate cuts to keep the record long expansion intact. How stocks fare today along with a report on U.S. consumer confidence will help guide the greenback in the day ahead.

EUR

The euro softened but held above three-year lows with sentiment drawing tentative support from German data that somewhat allayed concerns about recession in the bloc’s biggest economy. Data last week showed that Germany’s factory sector fared better than expected this month. Meanwhile, a report this week showed a surprise uptick business confidence. The euro also has benefited from sinking U.S. Treasury yields and a rising risk of the Fed cutting interest rates at least once by year-end. 

GBP

A data-inspired boost lifted the pound against the dollar and euro. A gauge of U.K. consumer spending rose for the first time in nearly a year in February, the latest evidence of an economy on the rebound after flatlining over the final three months of 2019. Upside for the pound continues to come in fits and starts, a reflection of the harsh rhetoric between the U.K. and EU on a long-term trade deal which hasn’t inspired confidence in an agreement by the year-end deadline.

CAD

Canada’s buck tracked oil markets cautiously higher. Crude pushed further above $51, a level it had slipped below the previous day at the height of the coronavirus-led selloff. The loonie continues to stick to a tight range ahead of growth data Friday. Canada’s economy likely slowed to an increase of just 0.3% during the fourth quarter after growing at a 1.3% pace in the third quarter. Should growth underwhelm last quarter it would increase pressure on the Bank of Canada to cut interest rates. The BOC meets on Mar. 4 with market futures showing around a 75% chance of no rate cut from 1.75%.


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