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Currency Market Analysis

Jun 10, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar fell to fresh lows ahead of a policy decision today by the Federal Reserve. The subdued greenback slipped to three-month lows against the euro, sterling and Canadian dollar. No major fireworks from the Fed are expected today. But America’s central bank could emphasize a willingness to do more for an economy that remains in intensive care after slipping into recession in February. While the Fed has done a masterful job of unveiling a series of low rate and growth-friendly measures to help nurse the economy back to health, it’s come at the price of a weaker dollar. The Fed’s aggressive actions reduced the need for safety in the greenback while near zero interest rates have undermined its yield appeal. The Fed will issue a statement and fresh economic forecasts at 2 p.m. ET followed by a virtual press briefing by Chairman Powell.

CAD

A weaker U.S. dollar kept the loonie near three-month highs. Broad based greenback weakness helped commodity currencies get back in the plus column after losing ground Tuesday as investors took profit. While the Fed today may not deliver more stimulus, it’s likely to signal a willingness to provide more support to an economy that descended into recession in February. Meanwhile, expectations have receded for the Bank of Canada to redouble stimulus in the wake of better than expected news on the Canadian economy.  

EUR

Expectations of dovish guidance from America’s central bank today helped propel the euro to fresh three-month highs. A rally since late May has the single currency threatening to revisit/eclipse peaks for the year reached back in March. The euro gained significant traction last week after the ECB boosted stimulus more than expected which helped to brightened the economic mood across the continent. 

USD

The U.S. dollar remained anchored around three-month lows after subzero inflation offered a green light for the Fed to keep the monetary gas pedal floored. Both headline and core inflation fell by 0.1% (m/m) in May compared to forecasts of zero. Key focus for the Fed today will be whether it says or does something to put a lid on rising Treasury yields. Doing so would help to keep borrowing rates low and affordable to help boost recovery prospects but likely add to dollar negativity that’s been on the rise.

GBP

A fresh bout of dollar weakness sent the U.K. pound to a three-month top. The dollar’s travails, coupled with generally buoyant global stock markets, helped the pound outrun risks related to Brexit and the possibility of the Bank of England deploying negative interest rates. While downside risks remain, the pound’s short run prospects have brightened given that it’s decisively strengthened above a key technical top, its 200-day moving average. 


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