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Currency Market Analysis

May 07, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar steadied with its bullish bias to be tested by a couple of critical economic snapshots. The greenback rose against the euro and yen but was little changed against the U.K. pound. Commodity currencies, like Canada’s dollar, rallied in knee-jerk fashion to surprisingly good news on China trade. The U.S. currency has outperformed this week as global data paints a picture of economic devastation from the coronavirus. Sterling tiptoed higher after the Bank of England left policy unchanged and its main interest rate parked at a record low of 0.10%. America’s job market will hog the spotlight over the balance of the week with weekly jobless claims on tap today, followed by nonfarm payrolls Friday that’s expected to be epically awful.


Sterling caught a momentary pop after the Bank of England kept its powder dry. The U.K. central bank left its key rate unchanged at historic lows of 0.10% and its QE bond buying at steady GBP645 billion. The BOE’s message and guidance was decidedly dovish, expecting the U.K. economy to contract by 14% this year which would be the worst in over 300 years, which led the Gov. Andrew Bailey to drop strong hints of deploying more stimulus as soon as next month. 


The dollar held steady after the weekly snapshot of America’s job market remained in historically bad shape. Weekly claim soared by 3.2 million in the latest period, coming in slightly above forecast. The good news was that claims moderated for the fifth time in as many weeks, a hopeful sign that the worst may be behind the job market. Expectations that America’s April jobs report Friday will be record-shattering kept currencies mostly grounded. America likely bled at least 20 million jobs last month, pushing unemployment to around 16%.


The euro slumped to two-week lows as Europe’s recovery from the coronavirus appeared a bit more daunting. European authorities have forecast record weakness for the bloc’s economy which it sees contracting more than 7% this year. Compounding the souring in euro sentiment has been doubts about the scope and reach of ECB policy after Germany’s top court this week ruled that the central bank had to prove the need for a bond buying program it launched years ago. 


Canada’s dollar rebounded from two-week lows thanks to higher oil and encouraging news on Chinese exports. Oil topped $26 after a close just below $24 the previous day. China exports unexpected rose, with a 3.5% increase in April. China’s good news, though, will be difficult to sustain given depressed demand from consumers around the world. Loonie gains may prove limited ahead of the nation’s April jobs report Friday which is expected to be record-smashing with unemployment around 18%. 

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