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Currency Market Analysis

May 14, 2020 | Currency Market Analysis

Global Themes

The perception of a longer and more daunting road to economic recovery from the coronavirus boosted the haven greenback to multiweek highs. The U.S. dollar climbed to one- and five-week highs against the euro and sterling, and reclaimed the upper echelon of its range against Canada. A record loss of Australian jobs, nearly 600,000 in April, pressured both the Aussie and kiwi dollars. Cautious remarks this week from the Fed chair continued to reverberate around the world, sending stocks down and haven assets higher. Jerome Powell warned of the deepest post-war recession ever and called on Washington spend further to try to stave off long lasting damage to the economy. Mr. Powell’s gloomy outlook led many to all but throw in the towel on hopes of a V-shaped recovery later this year. Markets are also on edge ahead of U.S. jobless claims today and retail sales Friday.


Canada’s dollar tipped to one-week lows, dented by weak domestic data and a stronger U.S. dollar. Canadian manufacturing sales plunged by 9.2% in March, far above forecasts of a 5.7% drop. Declines for the loonie were slowed by stronger oil with crude above $26, the highest in five weeks. Elsewhere, the Aussie dollar tumbled after Australia shed a record 594,300 jobs in April which sent unemployment soaring to 6.2%, the highest since September 2015.


The U.S. dollar index rose to three-week highs, finding solid underpinning from a gloomier global backdrop. A day after Fed Chairman Powell poured cold water over hopes of a V-shaped recovery, weekly jobless claims surged more than expected to nearly 3 million in the latest period. Coming in above forecasts of 2.5 million, the data was consistent with high and still-climbing unemployment. The market is now bracing for a second straight record plunge in U.S. retail sales Friday of around 12% in April from the more than 8% contraction in March.


The euro slipped to one-week lows against the greenback, a decline that pushed the single currency to within pips of a three-week bottom. Euro bulls are dispersing ahead of data Friday that’s forecast to confirm a record contraction of nearly 4% for the euro area economy during the first quarter. Meanwhile, worsening economic data points to a sharp acceleration in the slowdown during the second quarter.


President Trump endorsing a stronger U.S. dollar played a role in the U.K. pound sinking below a key floor for the first time in five weeks. Sterling frequently serves as a wingman to broader risk sentiment and stock movements. Global equities in decline weighed on the pound, with sentiment further soured by Britain’s record contraction of nearly 6% in March which led the U.K. government to warn of a ‘significant’ recession.

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