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Currency Market Analysis

May 06, 2020 | Currency Market Analysis

Global Themes

Gruesome data gives havens the upper hand

A slew of gruesome indicators kept the safe bet greenback mostly in vogue. America’s dollar slid to seven-week lows against the yen but pushed higher against big peers from Europe and Canada. Haven currencies held the upper hand following shockingly weak data that showed PMIs in the U.K. and India in the single digits. In Germany, factory growth plunged more than 15%, bolstering an EU forecast that the bloc was headed for a recession of ‘historic proportions.’ U.S. data was also dire as the ADP report of private-sector hiring plunged by more than 20.2 million in April. Fresh signs of a deteriorating global economy slowed oil’s rebound, pressuring commodity currencies. Market confidence continues to wax as economies slowly reopen for business, and wane when data highlights the extent to which the pandemic has crippled the world economy.

EUR

The euro neared two-week lows as the EU forecast its bleakest outlook ever, due to economic disruptions related to the Coronavirus. The EU forecast a recession of ‘historic proportions’ with the 27-nation economy expected to shrink by 7.5% this year. Complicating matters for the euro are growing doubts about ECB stimulus after a German court this week gave the central bank several months to justify a bond buying program.

USD

The dollar remained in a general groove despite another nasty look at the deteriorating state of America’s job market. ADP reported a loss of 20.2 million jobs in April which slightly topped forecasts. The data sets the stage for Friday’s government jobs data to show record job losses of at least 20 million which is expected to send unemployment skyrocketing to record highs above 15%. Safe havens are likely to hold the upper hand as many brace for the impact of the late week jobs data.

GBP

Wavering risk sentiment and a U.K. PMI plunging to the single digits gnawed at sterling. Britain’s construction PMI crashed to 8.2 in April, compared to forecasts of 22 from 39.3 in March. While construction takes a back seat to more meaningful PMIs like services and manufacturing, it suggested that Britain’s pandemic-inspired downturn could be deeper and longer lasting than previously thought.

CAD

Canada’s dollar fell alongside oil markets. Crude prices capped off a five-day rally Tuesday with a 20% spike to $24. The oil rally lost steam after a slew of gruesome data eclipsed optimism about economies gradually reopening for business. The loonie could assume a defensive posture in the run-up to Friday’s local jobs report that’s forecast to show a record loss of jobs of around 4 million for April.


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