Currency Market Analysis

Mar 19, 2020 | Currency Market Analysis

Global Themes

The world’s insatiable appetite for greenbacks continued Thursday, hurling the U.S. currency to three-year highs overall and to its strongest 3 ½ decades against the U.K. pound. The buck also notched three-year peaks against the euro and scored fresh multiyear highs versus Canada and Australia, while Mexico’s peso cratered to historic lows. The buck’s ferocious strength has become a barometer of worry about the coronavirus pulling the global economy into recession. The dollar wavered overnight after global central banks stepped up stimulus to try to guard against a steeper slowdown. The ECB launched a massive €750 billion bond buying program while the Fed introduced another lending facility. Australia’s central bank halved its key interest rate to 0.25%, a record low. Dollar strength is likely to be the name of the game in the absence of a slowing in the rate of global coronavirus infections.

GBP

A perfect storm of negativity hammered sterling to 35-year lows. The pound is being ditched for safety and liquidity in the greenback. The pound’s spectacular slide also reflects long positioning in the U.K. currency which had entered 2020 with seemingly fewer uncertainties after the Conservative prime minister, Boris Johnson, easily won a majority in Parliament. Britian’s lofty current account deficit is another vulnerability, leaving it dependent on foreign investment inflows. The pound’s slide to major trend lows suggests further losses over the near-term.

EUR

The euro made a roundtrip return to three-year lows as the greenback remained in high demand over the spreading coronavirus crisis. As recently as last week the euro had been flying at its highest in more than a year. The fast spreading virus in Italy and Spain, two of the euro zone’s four biggest economies, has steered many toward the safety and liquidity of the greenback. The ECB overnight stepped up its efforts to limit the economic fallout from the virus as it launched an aggressive €750 billion bond buying schemed designed to anchor interest rates in the hope of spurring borrowing and spending to jumpstart growth.

CAD

The loonie remained on its back foot after an oil-induced rout drove it to fresh four-year lows. The Canadian currency is now dangling closer to 2016 lows, a level that if breached would push it to a 2003 bottom. Oil currencies slid in sympathy with crude whose more than 20% collapse this week knocked prices to barely above $20, the lowest in 18 years. Rising worries about economic damage from the shock slide in oil and the hit from the viral pandemic suggests an imminent risk of the Bank of Canada cutting interest rates from 0.75%.

USD

The U.S. dollar maintained strength despite shockingly weak data that offered evidence of the coronavirus putting a noticeable dent in the U.S. economy. Weekly jobless claims exploded to 281,000 in the latest period, the highest in 2 ½ years. The Philly Fed index, a gauge of regional business conditions, plunged to minus 12.7 in March, the lowest since mid-2012. Insatiable demand for the dollar for now is outweighing signs of a faltering U.S. economy.


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