Currency Market Analysis

May 29, 2020 | Currency Market Analysis

Global Themes

With a pronounced month-end limp, the U.S. dollar sank to March lows against a wide swath of rivals. A confluence of factors conspired to push the greenback lower across the board. Among them: Hopes that the U.S. economy is nearing a bottom and poised for a marked rebound, improved risk appetite, and a European proposal of massive stimulus that, if approved, could give the bloc’s economy a much-needed shot in the arm. Political risk added another headwind on the buck ahead of a press conference today by President Trump on relations with China which have increasingly soured. Top-tier data are on tap today and will continue in the week ahead. Today brings influential reports on U.S. consumer spending and Canadian first quarter growth. Some of next week’s big events include central bank meetings in Canada and the euro zone and America’s May jobs report.

EUR

The euro’s rally gathered steam and hurled the single currency to two-month peaks. Euro sentiment brightened in a meaningful way after Europe proposed massive stimulus that, if agreed by all 27 EU countries, would give the bloc’s economy a welcome shot in the arm. The euro has also benefited from hopes that the world economy could be nearing a bottom and poised for a bounce over the second half of the year. Euro bulls for now overlooked news that euro zone inflation barely increased (0.1%) in May.

USD

The U.S. dollar stayed on the defensive following record bad news on America’s growth engine. Consumer spending plunged by a record 13.6% in April as measures to slow the spread of the coronavirus throttled the economy. The dismal news on the consumer validated dire forecasts that second quarter growth could contract by 30% or more after shrinking by 5% in the first quarter. The upside of the data was that personal incomes unexpectedly rose and by a robust 10.5%, boding better for a consumer comeback in the months ahead. Dollar bulls have increasingly dispersed on expectations that the reopening of businesses and the easing of lockdowns could herald third quarter growth in the double digits.

CAD

Canada’s loonie scaled 11-week highs as the greenback wilted and area growth wasn’t as bad as expected. Canada’s economy contracted at an 8.2% annual rate during the first quarter, compared to forecasts of a double-digit decline. Fourth quarter growth, meanwhile, enjoyed an upgrade to a 0.6% increase from the previous print of 0.3%. Expectations of an even faster pace of contraction in the second quarter kept the loonie from pushing much higher.

GBP

Capitalizing on dollar weakness, sterling climbed to more than two-week highs. Underlying sterling sentiment remained fragile at best, as evidenced by continued weakness against the euro. Moreover, a softening in risk appetite ahead of a speech by America’s president today bodes cautiously for the pound. For the month, GBPUSD shed nearly 2% while it remained in a more than 6% hole for the year.


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