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Currency Market Analysis

May 01, 2020 | Currency Market Analysis

Global Themes

Mixed but mostly steady is how America’s dollar kicked off May. The buck slipped against the euro and yen but strengthened against sterling and commodity currencies, while it shot more than 1% higher versus emerging markets. Stocks wasted no time with the adage “sell in May and go away.” Wall Street was poised to extend the previous day’s decline as the coming and going of central bank meetings put a brighter spotlight on the world economy which has endured an unprecedentedly bad week. U.S. consumer spending, the engine that drives about 70% of the world’s biggest economy, tumbled at a record rate of 7.5% in March. The euro zone logged its worst quarter ever in January-March when it contracted nearly 4%. The risk that America’s April jobs report next week will show record weakness could keep risk appetite in check and the buck around elevated levels.

GBP

The U.K. pound’s risk appetite-inspired rally petered out as global stocks tumbled. The pound won its first month of the year in April thanks mostly to Wall Street’s banner month when both the Dow and S&P 500 logged their best month in more than 30 years. Sterling will be all ears next week when the U.K. government is expected to outline plans to begin a gradual reversal of lockdown measures.

EUR

The euro notched fresh two-week highs in relatively light May Day holiday trading. The euro squeezed more juice out of a rally that generally traces back to late April re-balancing and position squaring. The euro also took some comfort from the ECB’s last move to bolster the bloc’s coronavirus-throttled economy. The central bank launched an even cheaper lending program for area banks to help kickstart borrowing and spending.

CAD

The loonie emerged a bit hungover after logging its first monthly gain since December. USDCAD shed 1% in April, its first decline of the year, as risk appetite improved, pushing investors out of the safety of the U.S. currency. The loonie and other commodity currencies are struggling on reports of renewed tensions between Washington and Beijing with the former threatening to slap fresh tariffs on the latter. FX volatility could reawaken next week with the potential for record weakness from the U.S. and Canadian job markets.


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