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Currency Market Analysis

Mar 25, 2020 | Currency Market Analysis

Global Themes

Dollar feels the gravity of Washington’s record aid package

The U.S. dollar trickled from multiyear highs as markets cheered overnight news that Washington had agreed on a historic aid package to ease the economic wallop from the coronavirus. Some of the hardest hit currencies were the best performers Wednesday with the Aussie dollar rebounding from 17-year lows and sterling climbing above a 35-year bottom. The buck also fell against the euro and loonie which rose above three- and four-year lows, respectively. The dollar index moderated further from three-year highs as it felt the gravity of lawmakers’ biggest-ever aid package of around $2 trillion to help businesses and households weather the coronavirus crisis. Euphoria over the deal coaxed many to put a toe back into riskier waters and away from the safety and comfort of the greenback. Sustaining investor confidence is likely to be a challenge with data tomorrow forecast to show a sharp spike in unemployment.

EUR

The euro ticked higher as demand for the greenback moderated following Washington handshaking on a record multi-trillion dollar aid package to help the nation weather the devastating blow from the coronavirus. Underlying sentiment toward the euro remains bearish, however. The bloc’s economic prospects grew dimmer as Germany’s Ifo survey of business confidence plunged more than expected to 86.1 in March, the lowest since July 2009. The grim data was consistent with Europe’s biggest economy sliding into recession.

CAD

The Canadian dollar rose to highs for the week against the softer greenback. Market sentiment perked up this week after Washington agreed on the contours of a record aid package of around $2 trillion to help weather the coronavirus. Wall Street today will attempt to extend the previous day’s rally when the Dow jumped by more than 2,000 points, or 11%, its best day since 1933. Oil prices slipped below $24 which doesn’t bode well for the loonie’s bounce.

GBP

Sterling was among the beneficiaries of Washington’s biggest-ever aid package to help the U.S. endure the economic damage from the coronavirus. The pound jumped by 1% against its softer U.S. counterpart. That helped sterling put a little distance between last week’s 35-year low. U.K. inflation data painted a worrisome picture of Britain’s economy. Consumer inflation inched down from six-month highs to 1.7% in February. The sharp slide in oil is expected to push inflation further downward in the months ahead. The market is on high alert for the potential for more stimulus from the U.K. central bank tomorrow.


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