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Currency Market Analysis

Jul 31, 2020 | Currency Market Analysis

Global Themes

The greenback stabilized somewhat after sinking overnight to fresh two-year lows. The buck, though, was still on track to post its worst month in 10 years, having shed about 5%, as it hovered near five-month lows against sterling and its weakest in more than two years against the euro. Canada’s dollar softened below recent multiweek highs but was still on pace to finish July about a percent stronger against its U.S. rival. The dollar staged a significant swoon this month as coronavirus infections accelerated and showed signs of undercutting the recovery. Tepid data and the Fed’s ultra-dovish outlook for policy weighed significantly on real U.S. interest rates, robbing the greenback of a yield advantage that it had carried into the year. Volatility is likely to shadow the greenback into August given political risk ahead of America’s presidential election.

CAD

The Canadian dollar was little changed as a steadier greenback overshadowed oil rising back above $40. USD/CAD was poised to end July more than a percent weaker, a reflection of broad based greenback negativity. Canada’s economy bounced back in May when it grew by a stronger than expected 4.5% after a record contraction of 11.7% in April. Canada’s nascent rebound will be tested next week by the nation’s July jobs report on Aug. 7.

GBP

Sterling appreciated by another penny overnight to its highest since early March. For the month, GBP/USD was on pace to rise by more than 5%, a rally largely driven by the greenback’s persistent slide. The Bank of England looms next week when bankers issue a decision, along with fresh economic forecasts on Aug. 6. Currency players will be all ears to see if the central bank voices any concern over the pound’s sharp spike over a short period of time.

EUR

The euro eased off fresh peaks, though its 5% surge against the greenback in July had it poised for its best month in a decade. Month-end rebalancing coupled with record weak euro zone data, when the bloc’s economy contracted by 12.1%, spurred some to pull a few chips off the table. Constructive news on euro zone inflation added to the euro’s bullish bias, as core prices rose at an annual rate of 1.2%, which pulled the cost of living a bit above a danger zone.

USD

The dollar had move off session lows only to push away from the day’s high after mixed news on the economy-driving American consumer. Consumer spending posted a robust 5.6% increase in June but incomes tumbled by a bigger than expected 1.1%. The setback in income added to expectations of a weaker recovery over the second half of the year. Key for the buck next week will be a crucial reading on nonfarm payrolls which are forecast to post less robust hiring of around 2.26 million after a record gain of 4.8 million in June.


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