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Currency Market Analysis

May 05, 2020 | Currency Market Analysis

Global Themes

The euro staging its worst day in a month provided a broad boost to the U.S. dollar. The greenback fared mixed, though, as higher oil markets buoyed commodity currencies. Improved risk sentiment with stocks pointing higher boosted emerging markets. The euro was more than a half percent weaker on the day, a slide inspired by a German court ruling that the ECB had to demonstrate that a key stimulus program was both necessary and appropriate. The euro tumbled as the court ruling stoked uncertainty over ECB policy and suggested limits to what the central bank could to bolster the bloc’s sputtering economy. Nascent recovery hopes were boosting broader market confidence as more economies outline plans to gradually reopen. Sustaining confidence has proven tricky as data highlights the extent to which lockdown measures have damaged global growth. 


The euro neared a one-week bottom after a German court ruling stoked uncertainty over ECB policy. A German constitutional court ruled that the ECB had three months to demonstrate that a bond buying program was both necessary and appropriate. The specter of limits to what the ECB could do to resuscitate its floundering economy weighed on the euro and came at a time when market positioning appeared long in the tooth with bullish bets on the single currency close to two-year highs, exacerbating its retreat. 


Canada’s dollar pushed higher on the back of recovering oil markets. A more than 10% rally lifted crude prices above $22, the highest in weeks. Hard hit energy markets are seeing some light at the end of a long dark tunnel as easing lockdown measures bode better for demand prospects. The loonie was little changed by news that Canada logged a smaller than expected trade deficit of C$1.41 billion in March versus forecasts of a C$2 billion shortfall. The loonie’s main economic sights are set on Friday employment data with forecasts pointing to record job losses in the millions.


Gains against the broadly weaker euro spilled over and supported the pound versus the greenback. Britain’s currency also found favor from improved risk sentiment with global stocks mostly higher. Still, the pound remained confined to a range as poor U.K. data highlighted economic fragility. Britain’s economy-driving services sector fared slightly less terrible than expected with the PMI getting revised a point higher to 13.4 in April, a still record-weak outcome. 

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