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Currency Market Analysis

Jun 18, 2020 | Currency Market Analysis

Global Themes

A weaker U.K. pound translated into continued buoyancy for the greenback. The euro hovered near two-week lows while Canada’s dollar steadied despite data-damaged commodity rivals from Down Under. The pound fell after the Bank of England redoubled stimulus to help revive a moribund British economy. Britain’s central bank left borrowing rates just above zero, at 0.10%, but added GBP100 billion to its QE bond buying stimulus to help anchor lending rates to spur increased borrowing and spending. Meanwhile, a mix of factors have helped the U.S. currency stabilize from three-month lows. Increasing coronavirus cases plus America’s economy sprouting green shoots have bolstered the dollar’s safe haven and fundamental standing. Fresh reads on the health of the world’s largest economy will be gleaned today from weekly jobless claims which are forecast to extend a moderating trend.

GBP

Sterling tumbled to two-week lows after the Bank of England eased monetary policy. Central bankers left interest rates at a record low of 0.10% but tightened a lid on longer term lending rates by upping asset purchases by GBP100 billion to GBP745 billion. While today’s action largely met expectations, the fact that the British economy is in such dire shape, having contracted 20% in April, suggests a rising risk of officials pushing interest rates into negative territory which would be detrimental to sterling’s yield appeal. In the absence of better data, negative rates could materialize as soon as the BOE’s next decision on Aug. 6.

USD

Wall Street may take exception with the latest weekly jobless claims, which improved less than expected, but dollar bulls cheered the fact that the improving trend remains intact. Weekly jobless claims inched down to just above 1.5 million compared to forecasts of 1.3 million. The Philly Fed index of Mid-Atlantic  factory growth surprised to the upside and grew unexpectedly in June, another in a growing list of dollar-positive green shoot sightings for the world’s biggest economy.

CAD

USDCAD moved more left to right while commodity rivals from Australia and New Zealand slipped from multimonth peaks following disheartening data. Australia’s jobless rate soared to nearly two decades highs of 7.1% from 6.4%. Across the Tasman Sea, New Zealand’s economy contracted by 1.6% in the first quarter, its biggest plunge in nearly 30 years.

EUR

The euro continued to probe the lower end of a three-cent range this month against the greenback. Lacking a catalyst to sustain recent gains, the single currency has shed two cents, or nearly 2%, from last week’s three-month top. The euro for now is finding somewhat of a cement floor in technical levels with it hovering around its starting point for the year against its U.S. counterpart.


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