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Currency Market Analysis

Jun 30, 2020 | Currency Market Analysis

Global Themes

The blended U.S. dollar index rolled to four-week highs, boosted by quarter-end flows, weak data from Europe and the highly uncertain road to economic recovery. Broad gains lifted the dollar against the euro and yen, while it was at or near one-month peaks against sterling and the Canadian dollar. Emerging markets also weakened. Poor data from Europe weighed on the euro and sterling. Core consumer prices in the euro zone slowed to a 0.8% annual rate in June, aggravating concerns about inflation sticking below the ECB’s near 2% goal for years to come. The 2.2% quarterly fall in British first quarter growth proved its weakest performance in four decades. While firmer Tuesday, the dollar was poised for a month of general underperformance, a reflection of investor hopes that the Fed and Congress will deliver more stimulus if the recovery should falter.


Growth worries pressured sterling, keeping in near one-month lows. Britain’s economy contracted by 2.2% during the first quarter, its weakest showing since 1979. As poor as that was, many, including the Bank of England, expect that British growth over the first half of 2020 likely plunged around 20%. Pound sentiment was further eroded by doubts about a UK-EU trade deal by year-end, and the nation’s high – and seen rising – fiscal debt load.


The euro fell on the final day of the month, weighed down by chronically weak inflation across the bloc. Euro zone core inflation fell deeper into a danger zone below 1%, coming in at 0.8% in June. Dangerously low inflation is a big worry for central bankers, as it can lead to deflation, a scenario that could prolong the downturn if consumers put off purchases in the hope of paying lower prices down the road. EURUSD was poised for a 0.9% gain in June, while the pair was little changed for H1.


The loonie neared four-week lows amid a stronger greenback and weaker oil. Canada’s dollar largely took in stride news that its economy contracted by a record 11.6% in April which stopped short of forecasts of a bigger 13% contraction. StatsCan, which published the data, forecast brighter economic times ahead with May GDP expected to grow by 3%. USDCAD slipped about 0.6% in June, but maintained a strong 5% gain since the beginning of the year.

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