Currency Market Analysis

Mar 23, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar went from up to down after the Federal Reserve announced new measures to bolster an economy facing severe pandemic-induced shocks. The greenback tumbled around 1% against the euro and yen and pared gains versus sterling, Canada and emerging markets. Overnight the euro had slipped to fresh three-year lows. A week after slashing interest rates to rock-bottom levels near zero, the Fed today announced more quantitative easing with no limits. The dollar fell in knee-jerk reaction to the open-ended nature of the program, an aggressive scheme that was warmly received by financial markets, one that wields the greatest potential yet to curb dollar appreciation. The buck had outperformed overnight after the Senate failed to pass a massive stimulus package aimed at dampening the economic wallop from the coronavirus. Markets are also bracing for coming U.S. jobs data to show sharp spike in unemployment.

CAD

Canada’s dollar trimmed losses against its U.S. counterpart after market sentiment brightened following the Fed’s announcement of a bold, open-ended QE program to help ease coronavirus-induced shocks to U.S. growth. Oil markets also pared declines, easing headwinds on commodity-linked currencies. Still, the Canadian dollar remains dangerously close to January 2016 lows. Collapsing oil markets and pandemic-related uncertainties spell economic distress for an economy that’s already decelerated over the last two years.

GBP

Sterling floundered in the vicinity of 35-year lows against the greenback. The pound continues to lose favor to safer and more liquid rivals like the greenback. Meanwhile, Brexit uncertainty looks set to linger for longer with the coronavirus casting doubt on the U.K. and EU reaching a longer term trade agreement by the end of the year. The Bank of England will remain in the spotlight after two emergency interest rate cuts this month dropped lending rates by a combined 65 basis points to all-time lows of 0.1%. Thursday’s 8 a.m. ET policy announcement will mark the first under new Gov. Andrew Bailey.

EUR

The euro rebounded after falling overnight to three-year lows. The euro bounced higher after the Fed announced an open-ended QE program aimed at dampening the economic wallop from the coronavirus. Europe’s single currency continued to hover around 2017 lows as it girded for area data this week to show the damaging effects of the coronavirus. Europe issues preliminary PMI surveys tomorrow follow by a look at Germany’s influential Ifo index of business confidence Wednesday.

MNX

Emerging markets from Mexico and South Africa crashed to all-time lows Monday as the global count of coronavirus infections continued to grow and Washington failed to agree on a massive stimulus program. But the peso and rand pared their losses after the Fed announced a bigger and bolder QE program that helped turn U.S. stock futures positive.


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