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Currency Market Analysis

May 08, 2020 | Currency Market Analysis

Global Themes

The greenback eased off two-week peaks ahead of today’s colossal look at the state of America’s job market. Major currencies from Europe, Japan and Canada were little changed as many sat on the sidelines ahead of America’s April nonfarm payrolls report at 8:30 a.m. ET. Forecasts call for historic job losses of around 22 million and record high unemployment around 16%. How the data fares against expectations will help guide recovery expectations. A print in line or better than forecast would follow encouraging news on China exports that, taken together, would add traction to the view of a V-shaped recovery. However, a disappointing outcome would paint a more alarming state of the economy and torpedo hopes of a robust recovery over the latter half of the year. The better the news, the more likely that safe havens could lose favor.

EUR

The euro rebounded from two-week lows following the ECB’s forceful rebuttal to a German court decision over a key central bank policy. ECB President Christine Lagarde said that the central bank was an “independent institution, accountable to the European Parliament, driven by mandate” of inflation stability. The euro was still on pace for a weekly loss, particularly with the spotlight next week on European growth, a sore subject for the single currency, with preliminary first quarter GDP on May 15.

USD

The U.S. dollar pared declines after America’s jobs report, while one for the record books, wasn’t as bad as feared. America shed a record 20.5 million jobs in April, sending unemployment to 14.7%, the highest since the Great Depression. While the data painted a horrific picture of the labor market, it wasn’t as bad as forecasts which gave traction to hopes of a V-shaped economic recovery in the months ahead.

CAD

Canada’s dollar maintained gains after the nation’s jobs report, while historically dreadful, proved better than forecast. Canada slashed 2 million jobs last month, a record high. But that stopped far short of forecasts of a loss of 4 million jobs. Record job losses pushed unemployment up to a near record high of 13% compared to forecasts of 18%. The loonie was on track for a weekly gain, helped by oil’s rebound to $24, the highest in nearly a month, and encouraging China developments as exports rebounded, along with a tentative thawing in tensions with the U.S.

GBP

Sterling was poised to finish a subpar week on a flat note with U.K. markets observing a public holiday. The pound sputtered as the Bank of England warned the U.K. economy could be in the midst of its deepest downturn in more than 300 years. Britain’s central bank penciled in a 14% contraction for the world’s No. 5 economy this year which would be the worst since the early 1700s.


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