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Currency Market Analysis

Jun 01, 2020 | Currency Market Analysis

Global Themes

America’s dollar pared declines after falling overnight to 2 ½ month lows. The broadly subdued greenback stuck close to three-week lows against sterling and a mid-March bottom against both the euro and Canadian dollar. The Aussie dollar flirted with four-month peaks. Markets continue to take their cues from hopes that economies have bottomed and are poised for a revival in the months ahead. No new escalation in simmering U.S.-China tensions also buoyed markets. Underlying sentiment remains delicate though which is limiting dollar losses amid rising civil unrest in the U.S. and a week chock full of major risk events like central bank decisions in Canada and Europe on Wednesday and Thursday, respectively, and America’s May employment report Friday.

GBP

The U.K. pound strengthened to three-week highs on the back of resilient risk sentiment and the weaker dollar. While stronger, sterling isn’t out of the woods with Brexit negotiations between Britain and the EU resuming this week. A lack of progress would raise the prospect of a no deal split at the end of the year, a scenario could result in pound-negative tariffs and other trade barriers from early next year.

CAD

Hopes that the world economy was at or near a bottom boosted commodity currencies with Canada’s dollar climbing to 12-week highs and the Aussie dollar flirting with four-month peaks. Commodity currencies also pinned their hopes on OPEC maintaining production cuts to help oil prices stabilize. Canada gets a new central bank chief in Tiff Macklem who takes the helm Wednesday when the Bank of Canada is expected to keep interest rates at a financial crisis low of 0.25%. But the bank could increase its QE bond buying, particularly ahead of Friday data that’s forecast to show the Canadian economy shed 500,000 jobs in May, pushing unemployment to record highs above 14%.

EUR

The euro rose to 2 ½ month highs, a rally that’s gained technical traction with EURUSD flying above its 200-day moving average. The euro received a shot in the arm last week after the EU proposed a bold stimulus plan to help the bloc bounce back from the coronavirus hit. The euro’s rebound had it less than a cent away from its 2019 close. An ECB policy decision will test the euro’s resilience. An increase in stimulus could potentially prove euro-positive if it depicts a brighter outlook for the bloc.


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