Currency Market Analysis
Aug 12, 2020 | Currency Market Analysis
U.K. economy plunges, sterling sinks
America’s dollar was little changed after an overnight climb to one-week highs. The buck was mixed versus Europe as the euro rebounded from earlier lows while record-weak U.K. growth data pushed the pound to one-week lows. Higher U.S. yields weighed on the yen which descended to three-week lows. Opposing forces are dictating the dollar’s direction, keeping it above two-year lows but making gains tough to sustain. A run of better data like last week’s July jobs report has improved sentiment toward the heavily sold greenback. But the longer wait for Washington to agree on much-needed pandemic relief has undercut dollar rallies. Next to influence the dollar will be U.S. consumer inflation data today that’s forecast to rise for a second straight month in July.
The euro kept to a range and a somewhat lower orbit versus the data-buoyed greenback. The euro has struggled to sustain rallies after last week’s U.S. jobs tempered worries about the health of the world’s biggest economy. Sentiment wise, the euro still holds the upper hand against the dollar as growth prospects continue to favor Europe.
Modest strength moved the loonie closer to last week’s February highs against the greenback. Canada’s dollar found support from buoyant risk sentiment with Wall Street revving to go when Wednesday trade gets underway. It also helped that oil climbed above $42, the upper end of its recent range. A lighter week of domestic data has led the loonie to take its cues from broader drivers such as investors’ risk tolerance.
The dollar wavered after less benign inflation figures continued a run of better than expected U.S. data. Consumer prices rose at an annual rate of 1.0% in July, above forecasts of a 0.8% increase and June’s 0.6% gain. Inflation continues to run far below the Fed’s 2% goal, giving policymakers leeway to reach deeper into their toolkit if necessary.
Sterling fell to one-week lows after data showed the U.K. suffered the deepest pandemic-induced recession among major economies. Britain’s economy contracted at a record rate of 20.4% during the second quarter. On an annualized basis, that equates to a 59.8% contraction which compares to America’s 33% plunged during the same period. Britain going on lockdown later and for longer than other big nations was credited with taking a bigger economic bite. The pound has kept above a key floor, as it helped that monthly data showed the economy returned to growth in June.
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