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Currency Market Analysis

Feb 26, 2020 | Currency Market Analysis

Global Themes

Globetrotting coronavirus trips sterling

America’s dollar firmed as global sentiment remained decidedly skittish following days of massive losses on Wall Street. Sterling led the majors lower against the greenback with the euro, yen and Canadian dollar also on their back foot. The Aussie dollar sank to fresh 11-year lows with the neighboring kiwi buck hitting an October bottom. The globetrotting coronavirus continues to destabilize markets, stoking heightened equity volatility and sending Treasury yields to all-time lows. Currency volatility has ticked up from static levels but has paled in comparison to the rout in equities as expectations rise for central banks to provide support. The uncertainty that the coronavirus has triggered about global growth has investors pulling forward expectations for rate cuts in the U.S., Canada and Britain over coming months. Wall Street should continue to set the FX tone with an assist today from U.S. new home sales data.

EUR

The euro seesawed after rising overnight to two-week peaks. The coronavirus-induced turmoil for markets has helped the single currency stabilize above three-year lows. That’s because the low yielding euro is often used as a funding currency for carry trade bets on higher yielding currencies. When turmoil engulfs markets, those bets typically get shifted into reverse to the benefit of the euro.

CAD

Canada’s dollar hovered in a lower orbit as deepening anxiety over the coronavirus weighed on oil markets which fell to fresh 13-month lows below $50. FX market gyrations have paled in comparison to the global equity rout. As a result, the loonie has kept to a confined range against the greenback. Canada’s fourth quarter growth looms Friday, which will offer the last meaningful look at the economy before the Bank of Canada issues a policy decision on Mar. 4.

GBP

The pound tumbled as turmoil stoked by the coronavirus led many to rethink the outlook for U.K. interest rates. While upbeat data suggest the U.K. economy may be in a healthier place, uncertainty from the viral outbreak only dovetails with still elevated uncertainty over a long-term trade deal between London and Brussels. Consequently, the market sees scope for the Bank of England to cut interest rates from 0.75% by the summer.


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