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Currency Market Analysis

Jul 07, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar steadied above multiweek lows as pandemic uncertainty returned to the fore, putting a brake on the global risk rally. The euro and Canadian dollar eased off two-week peaks with sterling also losing ground. Australia’s dollar fell after the nation’s No. 2 city, Melbourne, went back into lockdown mode. Emerging market currencies also weakened. While risk appetite has held the upper hand, pushing stocks higher and the dollar lower, its grip remains slippery. Investor confidence has been buttressed by lavish government stimulus which has shown signs of bearing fruit in better data. Still, the outlook for global growth remains shrouded in uncertainty due to yet to be contained coronavirus. Data and virus headlines hold the keys to the outlook. Any sign of stronger data starting to moderate could weigh anew on markets. 


The euro eased off two-week peaks as virus concerns caught up with and slowed a rally in risk assets. Underlying euro sentiment has improved thanks to data suggesting the bloc’s economy has held up comparatively well. At 7.4%, euro zone unemployment has barely budged this year despite economic headwinds related to the devastating coronavirus. By contrast, America is nursing double-digit unemployment of 11.1%.


The loonie softened from two-week peaks as oil slip and the greenback steadied. Adding to the loonie’s slightly softer disposition, a Bank of Canada survey this week showed that business sentiment turned “strongly negative” in the latest quarter. Another business survey looms today at 10 a.m. ET: Canada’s Ivey PMI. A continued improvement from record lows in March and April would bode better for loonie sentiment. 


Sterling outperformance against the euro translated into support against the greenback. The pound kept to the range though amid subdued risk appetite and ongoing uncertainty related to Brexit. A lack of much U.K. data this week has largely left the pound at the mercy of broader risk sentiment.

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