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Currency Market Analysis

Mar 06, 2020 | Currency Market Analysis

Global Themes

Accelerated losses Friday drove the broadly weighted U.S. dollar index to the lowest level in nearly a year. In a broad rout, the greenback crashed to more than six- and eight-month lows against the yen and euro, and plunged to its weakest in two years against the Swiss franc. Canada’s loonie also favored its back foot as oil prices tumbled more than 4% to $44. Emerging markets were also on the defensive with Mexico’s peso collapsing to 15-month lows. A historic slide in U.S. Treasury yields served as the straw that broke the dollar’s back and its handle on three-year highs reached a couple weeks ago. Economic uncertainty is spreading about as fast as the coronavirus which is heaping pressure on the Federal Reserve to follow up its big rate cut this week with another when it meets later this month.


The yen exploded to August 2019 highs against the greenback, boosted by the relentless rout in U.S. Treasury yields. The yield on America’s benchmark 10-year has fallen to 0.70%, a new record low. USDJPY has a heightened sensitivity to interest rate differentials, leaving the greenback exposed to increased downside risk if the trend continues.


Canada’s dollar kept toward the bottom of the range and near it weakest level in nine months. The market largely shrugged off a strong month of hiring in Canada as it didn’t adequately capture coronavirus uncertainty. Canada added more than 30K jobs in February, some three times larger than forecasts of 10K. Unemployment ticked up to 5.6%, while wages remained at elevated levels above 4%. Oil tumbling more than 4% to below $43 points to persistent headwinds on Canada’s dollar. Loonie sentiment dimmed this week after Canada cut interest rates and kept the door open to further cuts to protect an economy at material risk from the coronavirus.


Bullish hiring merely slowed the dollar’s drubbing. The dollar index hovered around one-year lows despite data showing America added 273,000 jobs in February, an amount more than 100K larger than expected. Unemployment ticked down to 3.5%, a 50-year low, while wages rose at a 3% annual rate. The data pointed to the job market firing on all cylinders before the coronavirus made U.S. landfall. While the freefall in yields is dollar-negative, should the ECB next week exceed markets’ tepid expectations for action, scope for dollar weakness could abate.


The euro’s spectacular surge hurled it to 2020 highs against the greenback, its strong level since July 2019. The euro continues to benefit by default from the greenback’s about-face, as sinking U.S. Treasury yields narrow what had been primary pillar of strength. Since hitting three-year lows two weeks ago, the euro has appreciated by a massive five cents. The euro’s surge will be tested next week when the ECB meets March 12 with expectations high for action to support its already fragile economy  

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