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Currency Market Analysis

Jul 17, 2020 | Currency Market Analysis

Global Themes

America’s buck was poised for its fourth decline in as many weeks with equity futures up, signaling risk appetite. The euro sat atop near a four-month summit ahead of a crucial meeting of EU leaders who will take up and attempt to approve a big relief fund. The U.S. currency also favored its back foot against the yen and swissie, though it was little changed against peers from Britain and Canada. Risk sentiment continues to fluctuate as investors weigh bullish developments such as progress toward a Covid-19 vaccine against soaring infection rates that threaten to prolong America’s deepest downturn in decades. Risk appetite has held the upper hand at the detriment to the dollar on expectations that policymakers stood ready to strengthen stimulus if the recovery falters. 

CAD

The loonie was mostly flat, though on pace to finish the week ahead of the greenback. A winning week wasn’t assured for the loonie with oil markets paring recent gains and after underwhelming data on wholesale trade, which sheds light on the health of the service sector. May wholesale trade increased by 5.7% in May, below forecasts of an 8.5% increase. The data, while positive, played up Bank of Canada concerns about a long road to full recovery which it doesn’t expect until 2022.

EUR

The euro favored four-month highs on hopes that Europe’s fiscal leaders would move toward agreement on a massive €750 billion rescue fund. A positive outcome by the end of the EU summit Saturday could potentially be the euro’s ticket to fresh highs for the year. The euro’s outperformance already has it less than a penny away from a key threshold it last touched in February 2019. Conversely, a disappointing outcome that merely kicks the fiscal can down the road would risk an unwinding of recent euro gains.

GBP

Sterling underperformed and was on track for a weekly slide against the greenback. The pound lost ground this week as weak U.K. economic fundamentals overshadowed mostly buoyant risk sentiment. Sterling suffered economic blows in data showing a lackluster recovery, low inflation and expectations for unemployment to climb, factors that bolstered the argument for central bankers to resort to pound-negative subzero lending rates. 


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