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Currency Market Analysis

Jun 09, 2020 | Currency Market Analysis

Global Themes

For a change, the U.S. dollar is playing offense while risk assets lose ground on profit-taking ahead of a policy decision by the Federal Reserve. While weaker versus haven rivals from Japan and Switzerland, the greenback bounced above multimonth lows against the euro, sterling and Canadian dollar. The high flying Aussie dollar reversed from 11-month peaks as global stocks slipped and markets considered the potential economic fallout from souring relations between Australia and top trade partner China. America’s central bank has played a key role in taming dollar strength as its bold crisis fighting measures helped restore investor confidence and set risk assets on a path to recovery. Any hint of more stimulus in the offing from the Fed could leave the dollar vulnerable to further downside risk after officials issue their policy decision tomorrow. 


The British pound fell from nearly three-month peaks as the U.K. unit, along with a slew of risk assets, came under profit-taking after reaching key highs. Sterling’s domestic economic sights as set to Friday when reports come due on monthly growth, factory output and trade. Numbers that play up Bank of England fears of the worst year for the economy in centuries could put fresh headwinds on the U.K. currency. 


The euro weakened from three-month peaks on profit-taking ahead of a Fed decision Wednesday. Meanwhile, rising concerns about the health of Europe’s biggest economy also weighed on the single currency. A day after German industrial output stage a record plunge of nearly 18% in April, exports contracted nearly 25% in April, setting the stage for a deep second quarter contraction. But given the elevated level of recovery optimism, the risk is that the euro could be bought on the dips. 


The loonie and commodity siblings from Australia and New Zealand retreated from multimonth highs on profit-taking on the eve of a policy decision by America’s central bank. Canada’s dollar has climbed to three-month peaks on the back of rebounding oil markets and domestic data largely faring better than expected, suggesting less scope for the Bank of Canada to further loosen policy. A 1% fall in oil Tuesday pushed prices below $38.

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