Currency Market Analysis

Jun 26, 2020 | Currency Market Analysis

Global Themes

The greenback fared mostly steady but a bit lower for the week as optimism about better economic times ahead buoyed risk currencies. The euro and sterling softened while the yen outperformed. Commodity currencies like Canada’s dollar were mostly subdued. The buck’s been driven by the ebbs and flows of optimism in a global economic rebound over the rest of the year. The dollar hasn’t strayed very far this week, a reflection of how recovery hopes have narrowly eclipsed worries that a spike in coronavirus infections could deal a significant setback to the world economy. For fresh clues on the state of the American consumer, the main driver of the world’s biggest economy, traders will parse numbers today on spending, income and morale.

EUR

A little changed single currency was on track to finish the week slightly ahead of the greenback. The modest outperformance this week of risk currencies is a sign that investors remain cautiously hopeful that the surge in Covid-19 cases won’t deal a meaningful setback to the global recovery.   

USD

The buck remained largely flat-footed following a mixed bag of data on the consumer. Consumer spending increased by a strong 8.2% but that undershot forecasts of 9%. While incomes fell less than expected, down 4.2% vs -6%, the fact that they fell won’t inspire confidence that stronger spending is sustainable. The Fed’s chief gauge of core inflation steadied at an annual rate of 1%. On balance, today’s mixed numbers validate the view that the economy has weathered the worst of the coronavirus but underscore what’s expected to be a choppy road to recovery.

GBP

Doubts in a Brexit deal kept the pound on a slippery surface with the U.K. unit little changed against its American counterpart this week. Looming next week is a decision on whether to keep or extend the Brexit transition phase beyond its current expiry of Dec 31. No change to the date, amid lackluster signs of a trade deal anytime soon, could weigh on sterling and leave it vulnerable to increased downside risk.  

CAD

Canada’s dollar was pinned near lows for the week, weighed down by a 1% fall in oil to $38. The loonie has underperformed this week as hopes of a snapback in global growth were dampened by a sharp rise in Covid-19 infections. Sentiment also was sullied after Fitch grew worried enough about Canada’s ability to service its high debt load that it slashed the country’s credit rate from AAA status.


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