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Currency Market Analysis

May 28, 2020 | Currency Market Analysis

Global Themes

Major currencies were on the steadiest behavior ahead of a slew of U.S. data over the balance of the week. The euro held firm near two-month highs, though Canada’s dollar eased off multimonth peaks, a reflection of China-related trepidation. The greenback has softened this week on the perception that the global economy may have weathered the worst of the coronavirus wallop. Consequently, the dollar has tested the bottom of a tight range. The market bias remains delicate and will look for a fresh steer today from U.S. numbers on durable goods, weekly jobless claims and revised first quarter growth. Friday brings data on the economy-driving consumer and a speaking appearance by Fed Chairman Powell.


The euro hovered near two-month highs after U.S. data, while mixed, kept alive the notion that the world’s biggest economy may have weathered the worst of the coronavirus blow. Europe’s shared currency has also found support from the EU proposing a bold €750 billion recovery fund to help the bloc rebound from the coronavirus. Still, the euro remains confined to well-worn ranges as uncertainty persists about whether all 27 EU nations will approve the stimulus plan anytime soon. 


Sterling edged up but remained below two-week highs scaled days ago, with upside capped by the perception that the Bank of England might need to deploy negative interest rates to battle what’s likely to prove one of its deepest economic downturns in centuries. Brexit seemingly stuck in a perpetual state of limbo often undercuts bouts of strength for the U.K. unit. Negotiations on a long-term trade deal between the U.K. and EU continue to proceed slowly, keeping pound-negative uncertainty elevated.


The push higher in the Canadian dollar paused, leaving the loonie below 10-week highs. Subdued oil and simmering tensions between the U.S. and China caused the loonie’s rally to moderate. Global trade developments are critical for the Canadian currency given that it runs a current account deficit that widened more than expected to C$17.3 billion during the first quarter. Next up: Canada’s Q1 GDP report Friday that’s expected to show the economy careening toward recession, and down 10%.


The dollar fell after another batch of U.S. data added conviction to the view that the world’s biggest economy may have already weathered the worst of the coronavirus downturn. Weekly jobless claims slowed to 2.1 million in the latest period from 2.4 million the week prior. A decline in continued claims was particularly encouraging. Durables goods offered a bit of a ray of hope as the 17.2% plunge in April wasn’t as bad as feared and came with better than expected news on business spending. U.S. growth proved weaker than forecast during the first quarter when it contracted by 5%. The market is likely to be more concerned with the more timely jobless claims data which is positive for risk assets. 

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