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Currency Market Analysis

Jul 21, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar fell to fresh lows as its arch-nemesis of late – risk appetite – gained traction. Broad declines pushed the greenback to nearly six-week lows against sterling and the loonie, and to new four-month lows against the euro. Risk sentiment brightened after Europe finally clinched a deal on how to divvy up its €750 billion rescue fund. Grants will comprise just over half that amount, or €390 billion, with the balance designated for loans. The deal served as a strong signal of European unity that galvanized confidence in the single currency. Still, no breakout move higher for the euro as the outcome was largely anticipated. Meanwhile, constructive news on a vaccine to help rid the world of the deadly coronavirus also buoyed market morale, sending the Aussie dollar to one-year peaks.

EUR

The euro inched to fresh four-month peaks after Europe finally agreed on how to divide its €750 billion rescue fund between grants and loans. The leaders of the 27 EU nations designated €390 billion to grants and the rest, some €360 billion, to loans. While expected, the deal helped to brighten the outlook for both the bloc’s economy while the strong signal of continental unity galvanized confidence in the euro’s long run prospects. Strong stimulus on the fiscal and monetary fronts bodes better for Europe’s economic outlook. The key to the euro’s outlook may now hinge on the economy and the strength of coming data. 

CAD

Canada’s dollar flirted with six-week highs as the greenback wilted, oil strengthened and data showed area consumers went on a massive spending spree. Canadian retail sales soared by 18.7% in May which helped to partially offset a 25% plunge in April, the peak of the economic damage from the coronavirus. The data, while robust, didn’t alter an outlook of a long road to recovery, reinforcing expectations of steady central bank policy for potentially years to come.

GBP

Sterling was among the immediate beneficiaries of the EU reaching what had proven an elusive deal on fiscal stimulus. The pound is basking in the afterglow of the news which helped to spur risk appetite. Sterling also is benefiting from signs of progress toward a Covid-19-suppressing vaccine. The pound neared six-week peaks, scaling the upper end of its range. Britain’s poor economic fundamentals, coupled with elevated Brexit uncertainty, suggest that sterling rallies could give way to renewed selling. 


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