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Currency Market Analysis

Jul 23, 2020 | Currency Market Analysis

Global Themes

A vulnerable greenback steadied above multimonth lows ahead of an important snapshot today on America’s job market. The buck was steady but mixed with the euro camped near 21-month peaks, while sterling softened and the Canadian dollar notched six-week highs. The euro has been a standout performer of late after the EU reached a historic agreement on its rescue fund that put the bloc on a somewhat smoother path to recovery from the pandemic. The global recovery story, meanwhile, has cast the dollar in a dimmer light as surging coronavirus infections threaten to upend America’s rebound. For clues on the state of America’s recovery, all eyes today will be on weekly jobless claims which are forecast to steady around historic highs.


Sterling backpedaled from six-week highs as the dollar index stabilized after sinking overnight to 4 ½ month lows. Appetite for risk could diminish to the detriment of the pound after disappointing data on America’s job market. Weekly jobless claims unexpectedly rose and for the first time since late March, which offered more evidence of a moderating pace of recovery in the world’s biggest economy.


The trade-weighted greenback steadied above 4 ½ month lows after disappointing news on America’s job market fanned some risk aversion. Weekly jobless claims printed above 1.4 million in the latest period, compared to forecasts to steady around 1.3 million. That marked the first increase in nearly four months, a worrisome sign that the recovery was starting to sag. While the dollar could benefit from more risk averse sentiment, today’s data strengthens the view that America’s recovery is lagging behind rival nations, the narrative partially behind its pullback.


Canada’s dollar pared gains after climbing overnight to six-week highs. Risk sentiment diminished after disappointing news on America’s job market renewed worries about the state of the world economy. Softer oil below $42, a multimonth high, added traction to USDCAD’s tentative rebound from Jun. 10 lows.


The euro showed a little fatigue after racing to October 2018 highs. The single currency’s nearly two-cent surge this week could see it consolidate its advance before pushing higher. The euro remains well supported by the euphoria that followed Europe’s historic agreement this week to form a united front to tackle its fiscal problems. But the downside of a stronger euro is that it could hamper recovery efforts by making area exports, a key growth engine, more expensive. The euro has enjoyed a nearly 10-cent turnaround since hitting lows for the year in late March.

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