Currency Market Analysis

Jun 17, 2020 | Currency Market Analysis

Global Themes

America’s economy and currency show signs of bottoming

America’s greenback was mixed but mostly firmer as it continued a recovery from three-month lows. The dollar rose against the euro, yen and sterling but softened against the Aussie, kiwi and loonie, commodity currencies that benefited from solid risk sentiment with Wall Street pointed higher. The buck has spent the past week recovering from multimonth lows, a turn that gained traction following nascent signs of the world’s biggest economy emerging from coroanvirus-induced downturn. This week’s record surge in retail spending added to other signs that the economy had bottomed and was poised for a rebound. Underlying dollar sentiment remains hazy though as the Fed chairman, who speaks again today on Capitol Hill, warns that risks remain to the economic outlook and that the economy isn’t out of the woods. Ahead of Jerome Powell’s lunchtime remarks are 8:30 a.m. ET surveys on U.S. housing starts and Canadian inflation.

CAD

The loonie steadied, albeit with a fragile bias, after the cost of living in Canada moderated more than expected. Underlying consumer inflation slowed to an annual rate of 0.7% in May, the lowest since 2013, from 1.2%. But another gauge of core inflation that the Bank of Canada watches closely held steady at 1.6%, not far from bankers’ 2% bullseye. Positive risk sentiment with Wall Street pointed higher has helped overshadowed news of a weaker Canadian economic underbelly.

GBP

Sterling declined as the weakest British inflation in years cemented expectations for the Bank of England to redouble stimulus. Consumer prices slowed to an annual rise of 0.5%, the lowest in four years, from 0.8%. By falling further from the British central bank’s 2% goal, it dialed up expectations for policymakers Thursday to keep interest rates at a rock-bottom 0.1% but increase its yield-depressing, economy-boosting asset purchases by at least GBP100 billion to GBP745 billion.

EUR

The euro was situated toward the bottom of its range, levels that if broken could allow more leeway to the downside. It’s been a week since the euro notched three-month highs. U.S.-European economic fundamentals have shown signs of shifting in the former’s favor following a record surge in American consumer spending. Meanwhile, the economic news from Europe today was more sobering as a survey confirmed that euro zone inflation barely increased (0.1%) in May, a low level that keeps the ECB’s door open to further stimulus.


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