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Currency Market Analysis

Jul 30, 2020 | Currency Market Analysis

Global Themes

A rise in global growth worries spooked markets to the benefit of the safe haven greenback. Lower stocks and renewed risk aversion helped the U.S. dollar tick above two-year lows. The euro eased off 22-month highs after data showed a record contraction for Germany, the bloc’s largest economy. While the dollar cuts losses against most rivals, including the yen and Canadian dollar, there was no stopping sterling which motored above a key psychological level to nearly five-month highs. Meanwhile, the dust has started to settle after a dovish statement from the Federal Reserve. The Fed holding fire for now while it assesses coming data didn’t meaningfully add to dire dollar sentiment. Focus today will be on U.S. second quarter growth, forecast to take a historic plunge of more than 30%, and the more timely weekly jobless claims.


Weaker world stocks and oil markets pushed the Canadian dollar from multiweek peaks. A spotlight on global growth and the extent of contraction in two of the world’s four biggest economies (i.e. the U.S. and Germany) dampened appetite for risk. Canada releases monthly growth data tomorrow that’s forecast to show its economy snapped back in May from a record contraction in April.


The dollar held firmer after U.S. data weighed on investor appetite for risk. Today’s data is unlikely to do the dollar any favors nor arrest its slide. U.S. second quarter growth plunged at record annualized clip of 32.9% during the second quarter. Weekly jobless claims, meanwhile, offered more evidence that the recovery is beginning to tire. The latest number edged further above 1.4 million, an historically high level. Any support for the greenback is likely to prove limited until America shows signs of containing the virus.  


Sterling topped both the euro and dollar as it climbed to nearly five-month peaks against latter. The pound’s rise in the face of lower stocks and weaker risk appetite made the move all the more confounding. Sterling continues to benefit from broad based dollar negativity. A key test of sterling strength will come in the early days of August when month-end rebalancing will have evaporated.


A double-shot of sobering stats from Europe tapped a brake on the euro’s surge to 22-month highs. The pandemic-slammed German economy contracted at a record rate of 10.1% in the second quarter which exceeded forecasts of -9.0%. That more than doubled the previous historic plunge of 4.7% during the first quarter of 2009 during the global financial crisis. Meanwhile, euro zone unemployment rose more than expected to 7.8% in June from an upwardly revised 7.7% in May. While Europe’s outlook appears brighter than the U.S., the data served as a stark reminder that the road to full recovery would likely prove long and winding.

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