Currency Market Analysis

Mar 12, 2020 | Currency Market Analysis

Global Themes

America’s dollar showed nascent signs of bottoming after a slide this week to 1 ½ year lows. The greenback appreciated Thursday against most rivals, pushing to fresh four-year peaks against Canada and notching new historic highs versus Mexico. The euro fell more than two cents below recent one-year highs as it braced for a policy decision this morning from the European Central Bank. Sterling flirted with five-month lows as the dust settled from a double-dose of U.K. stimulus that saw the country’s borrowing rates chopped to record lows just above zero. Now that the coronavirus has reached pandemic proportions, investors are gravitating toward the dollar given its distinction as the world’s most liquid currency. Dollar vulnerabilities remain, however, with futures markets pricing an elevated risk of the Fed cutting interest rates next week by as much as 100 basis points to nearly zero.

JPY

The yen shot 1% higher as U.S. Treasury yields fell and Wall Street was poised to build on the previous day’s sharp selloff. The yen tends to shine when global turmoil flares, boosted by Japan’s large creditor nation status. The strong yen, though, threatens to add to Japan’s woes with its economy on the brink of recession as it makes the country’s exports more costly abroad. The Bank of Japan meets next week with expectations on the rise for Tokyo to add to the tidal wave of global stimulus as the coronavirus is expected to batter growth. 

CAD

Canada’s dollar slid to fresh four-year lows as the price of oil shed 7% to $30. The loonie also is losing ground as deepening market volatility spurs a flight to safety in the greenback. Growing economic uncertainty at home in Canada and abroad suggests a near certainty of another Bank of Canada rate cut by or before its next meeting in mid-April.

MXN

Deepening coronavirus-induced market turmoil took a bigger toll on emerging markets. Consequently, Mexico’s peso crashed to fresh historic lows. The peso has shed around 13% this month alone, putting the Bank of Mexico in an unenvious position of deciding whether to cut rates to boost Latin America’s No. 2 economy. Further rate cuts would run the risk of accelerating peso declines and thus import inflation. 

EUR

The euro fell to one-week lows after the ECB kept interest rates unchanged. Some had thought the central bank would cut a key rate from minus 0.50% as fallout from the coronavirus risks a return to recession. With rates already at rock-bottom levels, the ECB instead resorted to new lending programs to try to spur borrowing and spending to boost growth. The euro is likely to see further swings when ECB President Christine Lagarde delivers a press briefing shortly. 

USD

Signs of a resilient U.S. labor market added traction to the greenback’s turnaround from recent 1 ½ year lows. The timeliness of weekly jobless claims suggests that’s the indicator to watch for initial signs of the coronavirus hampering U.S. growth. Today’s number showed a surprise improvement to 211,000 from a revised 215,000. Still, the improvement may be tough to sustain for long given the uncertainty stoked by the pandemic virus.

GBP

Sterling tumbled to five-month lows as the dust settled from a double-shot of U.K. stimulus that sliced interest rate to record lows of 0.25%. In addition to the Bank of England’s aggressive rate cut of 50 basis points, the U.K. government announced a GBP30 billion stimulus plan to try to keep the economy afloat as the virus compounds uncertainty related to Brexit. 


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