Currency Market Analysis

Aug 04, 2020 | Currency Market Analysis

Global Themes

A little changed greenback Tuesday held its chin above two-year lows. Indecisive trade reigned after July witnessed the biggest stampede out of the dollar in a decade and ahead of crucial event risks later in the week. Consequently, the euro was largely grounded after soaring last week to more than two-year peaks. Sterling pared gains ahead of what may prove to be dovish policy guidance Thursday from the Bank of England. Canada’s dollar nursed a tepid bias as oil fell below $41. Any upside traction for the greenback is considered limited with Washington struggling to agree on another relief package and with the virus holding a tight grip on the economy. The buck will look for direction from U.S. factory orders today at 10 a.m. ET and Friday’s much-anticipated July jobs report. Outcomes consistent with the economy digging its way out of a historic second quarter hole could buoy the dollar.

CAD

The loonie emerged subdued after Canada’s long holiday weekend. Softer oil and subdued broader markets dampened appetite for commodity-linked currencies. An important week for the Canadian economy kicks off today will a 9:30 a.m. ET survey of manufacturing sentiment. A wider deficit is forecast for trade figures Wednesday while lower, though still elevated, unemployment is in the cards for Friday.

GBP

Caution caught up sterling, checking its rise and its best monthly performance against the greenback in more than a decade. Sterling surged more than 5%, or nearly seven cents, last month, a rally largely driven by greenback underperformance. The Bank of England looms Thursday when the U.K. central bank is expected to hold borrowing rates at record lows of 0.10%. Dovish policy guidance that keeps the door unlocked to negative lending rates would expose a pound vulnerability that could leave recent gains at risk.

EUR

The euro alternated between small gains and losses Tuesday, as it looked for a fresh catalyst after soaring last week to more than two-year peaks. The euro remains in the driver’s seat, though, with the outlook for European growth perceived as better placed than the virus-stricken U.S. economy. The euro will look for a catalyst in German factory data on Thursday and Friday.


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