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Currency Market Analysis

Aug 03, 2020 | Currency Market Analysis

Global Themes

U.S. dollar selling gave way to some buying as investors geared up for a big week. That allowed the greenback to rise above two-year lows as it advanced across the board. The dollar is fresh off its worst month in a decade when it shade 4% on a trade-weighted basis. While the market is taking stock in the euro’s surge and the dollar’s swoon, the U.S. currency’s bearish backdrop hasn’t changed, leaving it vulnerable to continued weakness. The dollar sputtered last month as surging coronavirus cases punctured optimism about a V-shaped recovery. Moreover, signs of the recovery losing steam reinforced the Fed’s outlook of rock-bottom interest rates for years to come. Whether the greenback’s tentative rebound has legs may be gleaned from America’s employment report Friday that’s forecast to show less robust hiring of around 1.6 million in July, down from a record gain of 4.8 million in June.


Sterling’s flirt with five-month peaks abated ahead of a policy announcement and fresh economic forecasts from the Bank of England Thursday. Sterling’s rally – and its best month in more than a decade – could be vulnerable if the BOE should emphasize a weak U.K. economy and the prospect of negative borrowing rates. Highlighting the fragile state of Britain’s economy, the final reading of manufacturing activity was revised to a slower pace of growth in July.


The Canadian dollar softened in holiday-subdued trade. Weaker oil, though above $40, and a stronger greenback were the main drivers of holiday-light action Monday. Like the U.S., Canada’s marquee economic event arrives Friday with the nation’s monthly jobs report. Hiring is forecast to slow to a still-robust 400,000 in July from a record increase of more than 950,000 in June. Unemployment is expected to improve to 11.0% from 12.3% in June and May’s record high of 13.7%.


The euro succumbed to consolidation following its best month in a decade against the greenback. Market players may be wary of pushing the euro through another ceiling just yet ahead of critical transatlantic numbers this week. PMI Monday will be followed by payrolls Friday in America. The euro could rally anew if America’s July jobs report should offer more evidence of the recovery petering out amid surging Covid-19 cases.

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