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Currency Market Analysis

Jul 29, 2020 | Currency Market Analysis

Global Themes

America’s battered dollar resumed a defensive crouch ahead of an important policy update today from the Federal Reserve. The buck languished near 22-month lows against the euro, hit a fresh March bottom against the yen and sterling, and tumbled to its weakest in five years versus the Swiss franc. Dollar bearishness hit a fever pitch this month as U.S. policies to contain the coronavirus have been perceived as less effective than other developed nations. The health crisis has put America’s nascent recovery at risk. While the Fed today may hold fire on further support, it could signal a gloomy enough outlook that paves the way to stronger stimulus as soon as bankers’ next meeting in mid-September. The Fed will issue a policy statement at 2 p.m. ET followed by a press briefing by Chairman Jerome Powell 30 minutes later.

EUR

The euro kept its chin near 22-month highs against the dollar. Euro bullishness bodes well for continued gains over the short run. Still, the single currency could experience a corrective bout of profit-taking if the Fed is no more dovish than markets already expect. Conversely, if the Fed should sketch a grimmer outlook than markets currently appreciate, it could set the stage for the euro to test a key psychological top it last touched in May 2018.

GBP

Sterling shot to nearly five-month highs, a rally that had it on the doorstep of an important psychological level it last reached in March. Much of sterling’s outperformance has been at the hands of the droopy dollar, underscoring the U.S. currency’s pervasive weakness. Sterling’s close encounter with a key level could invite some selling, given Britain’s still vulnerable backdrop amid elevated Brexit uncertainty.  

CAD

A firmer Canadian dollar favored seven-week peaks against the greenback. Market sentiment was skewed cautiously positive with oil and equities up ahead of today’s 2 p.m. ET Fed decision. America’s central bank is at least expected to lay the groundwork for new stimulus measures as soon as its next meeting in mid-September. Doing so would underscore the extent to which optimism in America’s recovery has receded, a key driver of the dollar’s summer swoon.


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