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Currency Market Analysis

Aug 11, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar slipped from one-week peaks in data-inspired, thin summer trade. The euro received a confidence boost after German investor sentiment unexpectedly rose. Elsewhere, sterling jumped after area unemployment surprisingly steadied near historic lows. Buoyant risk sentiment with Wall Street climbing closer to record highs and oil higher boosted commodity currencies like the loonie and Aussie and kiwi dollars. The greenback remains dogged by the narrative that other nations are better navigating the coronavirus pandemic. Meanwhile, Congress at a standstill over more pandemic relief reinforces expectations low growth and low lending rates for longer. While weaker, the greenback has found somewhat of a floor from elevated tensions between Beijing and Washington that threaten to curb risk appetite.

GBP

Britain’s pound strengthened after area unemployment steadied at historic lows below 4%, defying for now forecasts of a rise. The U.K.’s jobless rate remained at 3.9% in the three months to June. While a welcome surprise, the jobless rate has been artificially anchored by a government scheme to pay furloughed workers who don’t count as unemployed. The government’s Coronavirus Job Retention Scheme is set to end in October. The expiry of the wage scheme could unleash a spike in unemployment with the Bank of England forecasting a year-end reading of 7.5%.

CAD

Canada’s dollar rose against the weaker greenback as risk appetite increased along with energy markets. A 2% rise pushed oil towards $43 from a close Monday below $42. The loonie also received a data lift as domestic house starts strengthened more than expected, up at an annualized rate of 245,600 in June, well north of forecasts of 210K, the latest sign of recovery from the Covid-19-induced downturn. 

EUR

The euro received a confidence boost that pulled it out of its biggest hole in a week. Germany’s influential ZEW survey of investor confidence unexpectedly rose to 71.5 in August versus expectations to ebb to 58 from 59.3 in July. The upside surprise was consistent with Europe’s biggest economy climbing out of its deepest-ever quarterly contraction of 10.1% in the second quarter, which underscored the bloc’s bullish recovery narrative. 


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