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Currency Market Analysis

Jul 24, 2020 | Currency Market Analysis

Global Themes

The plunging U.S. dollar found a modicum of support after an overnight brush with two-year lows. U.S.-China-induced risk aversion offered the dollar a tentative hand higher, pulling it a bit above six-week lows versus its British and Canadian peers and its lowest in 21 months versus Europe’s resurgent single currency. Risk assets slipped after U.S.-China relations eroded further after Beijing ordered the closure of America’s consulate in Chengdu. Any boost to the dollar could prove short-lived given the significant souring in sentiment toward the U.S. currency. The trade-weighted dollar sank to September 2018 lows this week amid mounting evidence that the surging coronavirus was restraining America’s economic recovery. Weekly jobless data showed a worrisome rise, the first in nearly four months. Meanwhile, better than expected data from Europe today depicted an improving picture abroad. The U.S. today will release preliminary PMI numbers that if uninspiring could leave the dollar vulnerable to renewed selling.

EUR

Euro bulls feasted on positive data that showed euro zone manufacturing returned to growth in July. Consequently, the euro remained camped near October 2018 peaks versus its U.S. rival. The stronger than expected factory survey, which printed at 51.1 compared to a contractionary 47.4 in June, bolstered conviction that Europe was on quicker path to recovery than the U.S.

CAD

The Canadian dollar eased off six-week highs as U.S.-China tensions soured sentiment for risk assets. Buoyant oil markets with crude above $41 suggested limited scope for USDCAD upside. Canada’s next major event risk looms with a July 31 report on May GDP which is forecast to grow by 3.1% after a 11.6% plunge in April. While USDCAD has fallen by 4.8% over the last three months, it retains a YTD gain of 3.3%.

GBP

A trio of better than expected U.K. data powered sterling to six-week highs. Numbers on British retail sales and services and manufacturing PMIs all topped forecasts, tempering for now concerns about weak U.K. fundamentals. The pound’s gain was tempered by renewed risk aversion stemming from worsening relations between the world’s two biggest economies after Beijing ordered the closure of an American consulate in China.


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