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Currency Market Analysis

Jun 11, 2020 | Currency Market Analysis

Global Themes

A deep shade of red for global equities helped the greenback stabilized from multimonth lows. The euro, sterling and Canadian dollar eased off March peaks as investors shifted their gaze to a revival in coronavirus infection rates from a recent revival in economic growth prospects. Market optimism also deflated after the Federal Reserve sketched a sobering outlook for America’s recovery from what’s expected to be the deepest recession in decades. Mr. Powell, the Fed chair, emphasized a highly uncertain road to economic health while downplaying nascent signs of green shoots in America’s labor market. While firmer, scope for a meaningful bounce higher in the U.S. currency appears limited after the Fed said it didn’t expect to raise interest rates until after 2022.


The euro slipped from three-month highs as sobering remarks from the Fed chair collided with evidence of rising coronavirus infection rates, developments that revived demand for safer plays like the greenback. Underlying sentiment toward the euro remains bullish, particularly after the Fed said that rate hikes were off the table until after 2022.


Canada’s loonie slipped to one-week lows from three-month peaks as oil and stock markets tumbled. A more than 5% plunge in oil steered prices below $38. The wall of worry gained stature over the last 24 hours as the Fed telegraphed a sobering outlook for growth with sentiment further hit by an increase in the number of coronavirus infection rates.


Sterling’s romp to three-month highs unraveled as investors sought safety following cautionary words from the Fed chair. An unwelcome uptick in coronavirus infection rates also unnerved markets to the detriment of risk sensitive currencies like the pound. Caution also caught up with the pound as Friday heralds news on the weak state of the U.K. economy. The world’s No. 5 economy is forecast to post double digit declines for numbers on April growth and factory activity.


Worries about elevated unemployment in America added to market trepidation and benefited the safe harbor greenback. Weekly jobless claims continued a downtrend but to a still elevated 1.5 million in the latest period. The data was consistent with a long road to recovery for the world’s biggest economy and consistent with interest rates pinned at record lows for years to come. The dollar appears poised to favor the lower end of its ranges as the low rate outlook won’t inspire greenback bulls.

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