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Currency Market Analysis

Jul 16, 2020 | Currency Market Analysis

Global Themes

The sliding U.S. dollar caught a reprieve as mixed data from China added to a decidedly uncertain outlook for global growth. The euro eased off four-month peaks while rivals from Britain and Canada also surrendered ground. Data showing that China’s economy returned to growth last quarter but that retail sales tumbled for a fifth month in a row pressured both the Aussie and kiwi dollars. The world’s No. 2 economy grew at a 3.2% pace during the second quarter, a bigger than expected bounce back after the Asian powerhouse economy contracted by 6.8% during the first quarter. The dollar is catching a risk-off boost as global worries put a brake on a Wall Street rally fueled by vaccine optimism. Choppy trade could be the name of the game today with the ECB and critical U.S. jobs and consumer spending data also in focus.

GBP

Sterling fell as it remained closely correlated with risk assets like the performance of global stocks which moderated. U.K. unemployment unexpectedly held steady at 3.9% in the three months to May, compared to forecasts of an increase.  While better than expected, the data isn’t likely to excite sterling bulls, given expectations for unemployment to still push higher over coming months as the coronavirus exerts broad downward pressure on Britain’s economy.

EUR

The euro eased off four-month highs against the greenback as caution returned to markets and the ECB left policy unchanged but kept the door unlocked to stronger stimulus. The ECB’s deposit rate for banks remained at minus 0.5%. With monetary policy in wait and see mode, attention now turns to EU fiscal authorities who meet over the coming two days and may vote on whether to approve a massive €750 billion recovery fund. The more progress toward an agreement, the more upside the euro could enjoy over the short run.

CAD

Canada’s dollar slipped off one-week peaks clocked overnight as global caution intensified, weighing on stock and oil markets, and boosting the safe harbor greenback. The loonie was already on shaky fundamental ground after the Bank of Canada this week vowed to keep interest rates anchored at record lows of 0.25% for “a long time,” potentially years, to help the economy recover from the coronavirus-induced downturn.

USD

The greenback pared gains after mixed readings on the U.S. economy kept uncertainty sky-high over the outlook. Weekly jobless claims improved but in underwhelming fashion, as they only inched down to 1.3 million compared to forecasts of 1.25 million from 1.31 million the prior week. Consumers stepped up spending for a second straight month in June, with retail sales up 7.5% after a record 18.2% splurge in May. Signs of only incremental improvement in the job market, coupled with soaring virus cases, cast doubt on the sustainability of spending going forward.


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