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Currency Market Analysis

Mar 10, 2020 | Currency Market Analysis

Global Themes

Sizable swings continued for currencies but this time the U.S. dollar was on the giving end. The greenback rebounded from one-year lows against the euro and multiyear lows against havens from Japan and Switzerland. The U.S. unit also backed off multiyear highs against commodity counterparts like Canada as oil recovered from its worst day in decades. Markets’ tentatively improved mood helped the Mexican peso stabilize after plunging to record lows. The U.S. currency a day earlier was on the receiving end of the worst stock selloff in a dozen years on expectations for the Federal Reserve to throw the kitchen sink at the coronavirus and chop borrowing rates towards zero and possibly redeploy QE measures. The buck’s cautiously improved tone today largely mirrors broader markets that anticipate tax cuts and other fiscal steps from the Trump administration to help ease the economic blow from the virus.


Canada’s dollar stabilized above its lowest level in nearly three years as it largely shadowed oil markets higher. The loonie had crashed alongside oil markets whose more than 20% slide to $31 Monday was its worst day in nearly three decades. Canada’s dollar continued to nurse deep, multi-cent lows for the week as the spreading coronavirus casts a pall over the economy and suggests continued interest rate cuts from 1.25% from the Bank of Canada. 


Sterling lost the handle on one-month peaks against the greenback, a unit that bounced after a broad drubbing Monday. Meanwhile, caution caught up with the pound ahead of an eventful Wednesday when Britain’s treasury chief will unveil a much-anticipated budget and U.K. numbers are due on growth and factory activity. Markets, meanwhile, may be underestimating the threat of a U.K. interest rate cut from 0.75% on March 26. A rate cut in two weeks’ time on the surface would tend to be sterling-negative. 


The U.S. dollar index rose above 1 ½ year lows but underlying sentiment remained negative on expectations for the Fed to deliver another big lending rate cut next week. The buck is up but not out of woods as coronavirus concerns raise the risk of a U.S. recession, a dire scenario that could lead the Fed to drop borrowing rates to crisis lows and potentially restart QE measures. 


Mexico’s peso bounced above new all-time lows against the greenback. The peso succumbed to the massive rout on oil and stock markets as it sent investors running for safety in the greenback. While the outlook remains bearish for emerging markets, scope for peso weakness may have diminished somewhat if the currency’s weakness leads Mexican central bankers to hold off on further rate cuts. Mexico’s next central bank decision looms on March 26.


The euro buying spree abated as global markets rebounded from steep selloffs. Consequently, Europe’s single currency edged down from one-year peaks against the greenback. Central banks hold the keys to EURUSD’s next steps. The ECB issues a much-anticipated policy decision Thursday followed by the Fed on March 18. Modest action from the ECB, coupled with a strong jolt of stimulus from the Fed, would run the risk of putting a stronger wind at the euro’s back.

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