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Currency Market Analysis

Aug 05, 2020 | Currency Market Analysis

Global Themes

A thicker layer of economic uncertainty pushed the U.S dollar broadly lower. The greenback neared two-year lows against the euro as U.S. lawmakers appeared no closer to agreeing on much-needed fiscal support for millions of unemployed Americans. The wait for new relief aid obscured an already murky outlook for consumer spending which increased pressure on the Fed to keep loosening policy. As a result, U.S. yields fell and gold climbed to new record highs above $2,000. Oil currencies were top performers, boosting the Canadian dollar, Norwegian krone and Mexican peso. Meanwhile, disappointing jobs data added to concerns about the pandemic derailing America’s nascent recovery, as ADP reported an increase of only 167,000 jobs in July, far fewer than forecasts of 1.5 million.


Sterling rose toward five-month highs as the sliding greenback gathered pace. The dollar’s rout has masked pound negatives such as the frail shape of Britain’s economy. U.K.-centric drivers could return to the surface Thursday when the Bank of England issues a policy decision. No change to the bank’s record low 0.10% lending rate is expected. A dovish statement that does nothing to assuage expectations of negative interest rates could check sterling’s rise.


Buoyant risk sentiment and oil pushing to five-month peaks north of $43 lifted the Canadian dollar to late February highs. Global markets continued to hold out hope that Washington would eventually reach a deal on badly needed fiscal aid for the tens of millions of unemployed Americans. The loonie shrugged off news that Canada logged a bigger than expected trade gap of C$3.2 billion in June from a revised deficit of C$1.3 billion in May.


The euro climbed toward recent May 2018 highs against the dollar as transatlantic data reinforced conviction in European outperformance. Data from the euro bloc confirmed that services industries grew anew in July. By contrast, America’s recovery appears at greater risk of backsliding after a gauge of private-sector hiring missed forecasts (167K vs 1.5 mln.) by a long shot. While ADP doesn’t always correlate closely with Friday’s nonfarm payrolls report, it added to whispers that hiring may have contracted in July, a scenario that if realized would exacerbate growth worries and could fuel another bout of dollar weakness

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