Currency Market Analysis

Jul 15, 2020 | Currency Market Analysis

Global Themes

Dollar slides to fresh lows

Dollar losses snowballed overnight, pushing the U.S. unit to fresh lows. The trade weighted dollar index fell to one-month lows while broad based declines knocked the U.S. currency to four-month lows against the euro. Rivals from Japan, the U.K. and Canada also held the upper hand, as did counterparts from Down Under and emerging markets. Risk appetite is on a roll amid encouraging news about vaccine development. Once a vaccine is discovered, it’s expected to allow for a real economic recovery to take hold which would be a big step toward halting the recession. Downside risk for the greenback has been compounded by accelerating coronavirus cases that threaten to prolong the economic harm. Canada’s dollar strengthened but kept to a range ahead of a 10 a.m. ET policy announcement today from the Bank of Canada.

CAD

Canada’s dollar strengthened, though USDCAD kept to a range ahead of a 10 a.m. ET policy announcement from the Bank of Canada. Recent Canadian data depict an economy in the early stages of recovery, a factor that’s expected to allow the central bank today to keep borrowing rates unchanged at 0.25%. Central bankers also will release fresh economic forecasts. While the loonie could lose ground if the BOC should play up downside growth risks, it stands to benefit if the recent slide in the greenback gathers pace.

GBP

Sterling hovered near multiweek peaks against its U.S. peer, boosted by improved risk appetite and broad based greenback weakness. The pound padded its gain after domestic data showed a bigger than expected rise in core inflation to a 1.4% annual rate, a move toward the Bank of England’s 2% goal, from 1.2%. Sterling fundamentals, however, remain on shaky ground after May growth underwhelmed which kept alive the risk of the Bank of England resorting to negative interest rates to revive the world’s No. 5 economy.  

EUR

The euro surged to four-month peaks, a rally that had it within reach of 2020 peaks. The euro has capitalized on greenback weakness. Meanwhile, hopes that Europe would sooner or later reach a compromise agreement on a massive coronavirus recovery fund added traction to the euro’s rise. EU officials hold a summit Friday and Saturday when they will attempt to bridge their differences. A big step toward an agreement this week could add fuel to the euro’s outperformance and keep it biased higher over the short run.


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