Currency Market Analysis

Aug 06, 2020 | Currency Market Analysis

Global Themes

Another restless night saw the greenback sink to new lows. But the U.S. dollar stabilized as caution reigned and risk appetite abated ahead of fresh news today and tomorrow on America’s pandemic-weakened labor market. The euro and sterling edged off fresh peaks, the former’s highest in over two years and the latter’s strongest in five months. Canada’s dollar softened from February highs. Modest improvement is on the cards for today’s closely-watched print of weekly jobless claims. Failure to improve would be a bad sign for the dollar as it would add to mounting evidence of a slowing recovery in the job market. America’s July jobs report looms Friday. Upbeat jobs data could help ease pressure on the dollar. But if the data should aggravate concerns about U.S. economic fragility it could spell another leg lower for the U.S. currency.

GBP

Sterling climbed to five-month peaks after the Bank of England left monetary policy unchanged and dialed down its economic gloom. The BOE left its benchmark rate at a record low of 0.1%, and its asset purchases at GBP745 billion. The bank emphasized “huge uncertainty” and “very big downside risk” for Britain’s economy. But it now forecasts the economy to contract by 9.5% in 2020, compared to its May forecast of -14%. The bank striking a more optimistic tone can allow for further near-term gains for sterling, keeping 2020 highs within reach.

CAD

A pullback in risk appetite nudged the Canadian dollar off five-month peaks. Loonie sentiment remained buoyant with the greenback pressured by U.S. economic fragility and expectations of ultra-accommodative Fed policy for years to come. The price of oil moved below $42 on caution ahead of jobs data from both sides of the border Friday. Canadian unemployment is expected to decrease to 11% in July from above 12%, with hiring seen slowing to 400,000 from a record surge of more than 950,000 in June.

EUR

The euro notched new highs overnight against the greenback, its strongest since May 2018. But the euro turned lower as caution returned to markets, sapping risk appetite. Underlying sentiment remained upbeat for the euro in the wake of recovery-friendly data from the bloc’s biggest economy. German industrial orders smashed forecasts with a 27.9% spike in June which was more than double forecasts of a 10.1% increase.

USD

The U.S. dollar hovered just above its lows after reassuring news on America’s job market. Weekly jobless claims improved more than expected to 1.2 million from 1.4 million. While encouraging, the data remains historically weak. The buck needs more than one data point to help alleviate severe selling pressure. Meanwhile, elevated jobless claims in July suggest the risk is to the downside for nonfarm payrolls Friday. Disappointing news Friday would leave the dollar vulnerable to continued weakness. Forecasts call for hiring to slow to 1.6 million in July from June’s record surge of 4.8 million.


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