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Currency Market Analysis

Jun 25, 2020 | Currency Market Analysis

Global Themes

Investors are running and ducking for cover in the greenback following a parade of negative news this week. A second straight day of broad gains boosted the U.S. currency against core rivals from Europe, Japan and Canada. A wave of optimism has come crashing down following an alarming spike in Covid-19 cases, the IMF downgrading an already grim outlook for global growth, and renewed trade tensions between the U.S. and several of Europe’s largest economies. Add it all up and this week’s developments have punctured optimism about a snapback in growth over the balance of the year. But while market sentiment has clearly soured, it remains fluid. The mood could improve if U.S. numbers today on weekly jobless claims, durable goods and first quarter growth shift the spotlight back to brightening fundamentals.


Weaker oil and equity markets weighed on the loonie, knocking it to 10-day lows. It also didn’t help sentiment that ratings bureau Fitch this week slashed Canada’s credit rating to AA+ from AAA on account of the nation’s swelling deficit which increased amid government support to stem the impact of Covid-19. A 2% slide pushed oil to $37.


A moderation in the pace of improvement for weekly jobless claims kept the market temperature elevated and the dollar near session peaks. Weekly jobless claims fell just inside of 1.5 million which was higher than forecasts of 1.3 million. Durable goods beat with a 15.8% rise in May. Another survey confirmed that the world’s biggest economy contracted by 5% in the first quarter, its weakest performance in more than a decade.


Dampened optimism about a global recovery spurred a flight to the safer greenback at expense of the euro. The euro also suffered as the U.S. mulled a new round of trade tariffs on big European counties like Germany, France, Spain and Britain, measures that would complicate an already difficult road to economic recovery.  


Sterling nursed a subdued bias, weighed down by renewed risk aversion and worries about the downside risks to growth from the Brexit quagmire. Britain has less than a week to decide whether to extend the transition phase with the EU which is currently set to expire at year-end.

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