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Currency Market Analysis

Jun 05, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar caught a tentative breather on caution ahead of America’s monthly jobs report. Consequently, the greenback steadied near three-month lows against the euro, sterling and Canadian dollar. The yen, another safe harbor that’s fallen out of favor as recovery optimism builds, slipped to 10-week lows against its U.S. counterpart. A rapid loss of altitude has pushed the dollar dangerously close to 2020 lows. The buck’s latest descent stemmed from the ECB overwhelming with stimulus to help stave off a deeper recession. The buck’s tentative recovery from three-month lows is likely to hinge on America’s May jobs report today. Forecasts call for a loss of 8 million jobs in May and unemployment around 20% from just below 15% in April.


A massive upside surprise to America’s jobs report put a brake on the euro’s surge to three-month peaks. The euro is on a three-week winning streak, helped by the ECB this week delivering stimulus that overwhelmed expectations. The ECB beefed up its coronavirus support scheme by €600 billion – exceeding consensus forecasts of €500 billion – to €1.35 trillion. Today’s stunningly positive U.S. jobs report, showing a gain of more than 2.5 million in May – poured cold water over prospects of Europe on a faster track to recovery than America.


Signs that America’s recovery from the coronavirus commenced last month put some wind at the dollar’s back, coaxing it from three-month lows. America added just over 2.5 million jobs in May, far above forecasts of a outsized loss of 8 million. The sudden spike in hiring pushed unemployment down to 13.3% from 14.7%. Green shoots this large helped the dollar form a tentative bottom. It’s premature to say whether the massive hiring spree has changed the game in a meaningful way for the dollar. At the very least, it can buy the Fed, which issues a policy decision next week (Jun 10), more time to wait and see before increasing stimulus.


Surprise Canadian job growth last month lit a fire under the loonie, sending it to fresh three-month peaks. Canada added nearly 290,000 jobs in May, wrongfooting forecasts of a loss of 500,000. Despite the welcome hiring spree, unemployment, while below forecasts of 15%, rose to 13.7%, an all-time high, from 13.0%. Evidence of the economic recovery transpiring sooner rather than later suggests the Bank of Canada may hold fire on stronger stimulus which is loonie-positive


Rising risk appetite buoyed sterling, with the U.K. unit flirting with three-month peaks against its U.S. peer. The pound’s resilience is a bit remarkable as it’s coming against a backdrop of chronic Brexit uncertainty. The EU’s chief negotiator acknowledged scant signs of progress toward a trade deal in talks this week.

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