Currency Market Analysis

Jul 14, 2020 | Currency Market Analysis

Global Themes

The greenback was little changed after enjoying a brief boost overnight when investor confidence moderated. The buck slipped to one-month lows against the euro but otherwise was on solid footing against the yen, sterling and Canadian dollar. The buck continues to see somewhat short-lived spurts of gains and losses, a reflection of investor hopes and fears over the recovery and coronavirus. China helped brighten the market mood after it reported better than expected trade in June, another sign of recovery for the world’s No. 2 economy. Yet renewed diplomatic tensions between the U.S. and China kept optimism in check. The pound fell after underwhelming U.K. data dampened hopes of a marked rebound in growth. Weaker oil and pre-Bank of Canada caution kept the loonie broadly 

EUR

The euro rose to two- and four-week highs against rivals from Britain and the U.S. The single currency’s broad gains helped it weather disappointing news on the German investor whose sentiment deteriorated more than expected in July, according to the influential ZEW survey. Boosting the euro are expectations that sooner or later Europe would approve a massive coronavirus relief fund to help the bloc get back on its feet. Such an opportunity comes as soon as this week when EU officials meet on July 17-18.

CAD

The loonie fell to July lows as weaker oil overshadowed a rebound in risk appetite with Wall Street on pace for early session gains. A 1% slide pushed the price of oil below $40, putting a headwind on commodity assets. The loonie is also playing it a bit cautious ahead of a Wednesday policy decision by the Bank of Canada. No change to interest rates from 0.25% is expected. The central bank’s new forecasts for the economy could help steer both policy expectations and the near-term trajectory of the loonie. 

USD

The U.S. dollar favored session lows after cost of living data showed muted core inflation, a green light for the Fed to redouble stimulus if the resurgent pandemic threatens to throw the recovery off course. Consumer inflation rose for the first time in four months in June with a solid 0.6% increase. But less volatile core inflation increased at a muted 0.2% pace, giving the Fed ample leeway on policy.

GBP

Sterling fell to one- and two-week lows against the dollar and euro after data showed a far weaker than expected rebound in growth in May, following a record contraction of more than 20% in April. May growth increased by 1.8%, stopping far short of forecasts of a 5.5% expansion. With Britian’s economy struggling to bounce back, it raised the stakes for the nation’s central bank to deploy negative borrowing rates with some markets pricing in such a move in by the end of Q1 2021. 


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