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Currency Market Analysis

Jun 04, 2020 | Currency Market Analysis

Global Themes

Caution ahead of key event risks helped the greenback stabilize after sinking to mid-March lows. The buck steadied after sinking to one-month lows against sterling and its weakest in nearly three months versus the euro and Canadian dollar. Market eyes are focused on a trio of risk events: An ECB policy decision today and U.S. weekly jobless claims. Looming Friday is America’s employment report for May that’s forecast to show unemployment around 20%, the highest since the Great Depression. The dollar has sputtered this week as optimism builds that the economic damage from the coronavirus is starting to recede. The buck lost renewed ground after the ECB announced a significant increase to its coronavirus asset purchases. More forex volatility could ensue when ECB President Christine Lagarde holds a news conference shortly. 


A bigger than expected dose of monetary stimulus from the ECB spurred a fresh round of euro buying that boosted the single currency to new highs. The ECB nearly doubled its coronavirus asset purchase program to €1.35 trillion from €750 billion. The €600 billion increase to the bloc’s support program topped forecasts of €500 billion and was well-received by euro bulls. But having rallied far and fast over a short period of time the euro appears ripe for a corrective bout of profit-taking. 


The loonie drifted below March highs as the greenback stabilized and oil markets moderated. A less dovish statement from the Bank of Canada Wednesday translated into continued support for the Canadian currency. The bank said that the economy appears to have dodged worst case scenarios. Key for the loonie’s coming prospects will be the nation’s employment report Friday. Forecasts suggest the economy shed 500,000 jobs in May with unemployment seen rising to 15% from 13%.


The greenback steadied above multimonth lows as the latest jobs data, while historically weak, continued to trend in the right direction. The latest tally of weekly jobless claims printed inside of 2 million compared to a late March peak of nearly 7 million. Next up: America’s May employment report Friday that’s forecast to show the economy bled 8 million jobs, compared to April’s record loss of more than 20 million. Unemployment is expected to spike to around 20% from about 15% in April. Outcomes that validate the view that the worst of the coronavirus damage is in the rearview mirror would tend to weaken the dollar and strengthen risk assets.

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