Currency Market Analysis

May 15, 2020 | Currency Market Analysis

Global Themes

America’s dollar was flat with a firm bias ahead of a report on the economy-driving U.S. consumer. The greenback weakened against the yen but rose against rivals from Europe and Canada. The Aussie and kiwi dollars along with emerging markets also underperformed. Haven assets have fared solidly this week as markets price in a longer road to recovery. Global data were mixed as Chinese factories grew in April but Germany slipped into recession after its economy, Europe’s biggest, contracted by 2.2% in the first quarter. Markets will close out the week with a reading on the U.S. consumer who does the heaviest lifting for the world’s biggest economy. Forecasts call for a record plunge of around 12% for the latest reading on retail sales.

CAD

Canada’s dollar lost ground Friday, pressured by weaker global stocks. The loonie has kept to well-worn ranges with upside capped by dampened hopes of a quick rebound in global growth and downside limited by strengthening oil markets with crude above $28 for the first time since early April. Loonie attention next week will be on domestic indicators on inflation Wednesday and retail spending on Friday.

EUR

The euro largely brushed off news that Europe’s biggest economy slipped into recession in the first quarter. That’s partly because the single has already fallen to depressed levels. Nevertheless, Germany’s economy contracting by 2.2% in the first quarter won’t improve the single currency’s prospects either. A downward revision to fourth quarter growth to just below zero met the textbook definition of recession or back to back quarters of negative GDP.

USD

The U.S. dollar pared gains after retail sales plunged more than expected last month. Consumer spending tumbled by a record 16.4% in April which was about two times bigger than the previous month’s record drop of more than 8%. The data validated the Fed chair’s warning of a potentially prolonged recovery from recession and led some to sell the buck to reap profit on its outperformance.

GBP

Make that a seven-week low for sterling. Growing doubts over the U.K. and EU reaching a trade deal in the months ahead gnawed anew at the pound. Mostly risk off global markets and the Bank of England not ruling out negative borrowing rates added traction to the pound’s turn to the bottom of its range. Sterling faces a daunting coming week of data with numbers due on unemployment, inflation and consumer spending.


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