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Currency Market Analysis

Apr 29, 2020 | Currency Market Analysis

Global Themes

Dollar on defensive as U.S. lunges toward recession

The U.S. dollar favored its back foot ahead of two towering event risks today: America’s first quarter economic report card and a policy decision by the Federal Reserve. The dollar languished around one- to two-week lows against the euro, sterling and Canadian dollar. Emerging markets were broadly firmer ahead of today’s key events. The dollar kept in the red after data confirmed that America’s record-long expansion came to a screeching halt. The world’s biggest economy contracted at an annual rate of 4.8% during the first quarter, the first negative print in six years and the biggest decline since 2008. The data exceeding forecasts of a 4% plunge validates fears of a far faster pace of contraction, perhaps 30% or more, during the second quarter. Next up: The Fed’s 2 p.m. ET decision followed by Chairman Powell’s press conference 30 minutes later.

USD

The U.S. dollar languished near recent lows after America’s record-long recovery came to a sudden stop in the opening quarter of 2020. First quarter growth contracted at an annual rate of 4.8%. The data exceeding forecasts validated worst-case fears of second quarter activity contracting as much as 30-40%. An economy faring worse than expected dampens hopes of a coveted V-shaped recovery later this year. The Fed issues its decision at 2 p.m. ET today followed by a press conference by the chairman. Higher stocks in the wake of the Fed decision would suggest further scope for dollar underperformance.

EUR

The euro kept toward the upper end of its range, boosted by dollar weakness and European plans to gradually reopen economies. Some of the bloc’s core economies plan to gradually restart economic activity in the days ahead. While firmer, the euro kept to a tight range ahead of central bank decisions today in the U.S. and tomorrow in the euro zone.

GBP

Britain mum on when it plans to roll back lockdown measures weighed on the pound and largely kept it sidelined while the euro and others rose against the greenback. The perception that Britain would ease lockdown measures later rather than sooner led many to kick further down the road U.K. economic recovery prospects.

CAD

Canada’s dollar strengthened to two-week highs as the greenback wilted. Higher stocks and oil markets added traction to the loonie’s upturn. While the Fed may hold fire today on further stimulus, broader markets are hopeful the Fed will deliver more reassuring words and lace its forward guidance with vows to do more, if needed. C$ strength will be tested Thursday by local growth data for February with modest expansion on the cards.


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