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Currency Market Analysis

Aug 13, 2020 | Currency Market Analysis

Global Themes

America’s dollar squandered recent data-driven gains as it slipped to lows for the week. The euro and sterling were at or near highs for the week, while the Canadian dollar flirted with six-month peaks. The buck had stabilized at one-week highs following better than expected news on the U.S. economy that tempered growth fears. But the longer wait for Washington to deliver another round of pandemic relief has caused dollar-negative clouds to gather over the economy. Key for the dollar today will be weekly jobless claims. The weekly snapshot is expected t improve for a third week in a row but remain near historic highs. Better than expected news on the job market could help slow the dollar’s slide. But any upside for the dollar is considered limited at best until Washington strikes a deal on a relief package.


The U.K. pound strengthened as the greenback took a fresh leg lower. The heavier dollar overshadowed U.K. vulnerabilities such as the risk of a sharp acceleration in unemployment after the government’s salary scheme ends in the months ahead. The pound’s fundamental prospects appear shaky after the U.K. endured a record contraction of more than 20% during the second quarter which was more than double America’s contraction and the biggest among developed nations.


Canada’s dollar cruised to its highest in nearly six months, riding a wave of resilient risk appetite. A weaker greenback, coupled with firmer stocks and oil, was enough to boost the loonie to late February peaks. The longer wait for another round of U.S. fiscal stimulus is playing up downside risks to America’s economic recovery which bodes badly for the greenback.  


The euro rose to highs for the week as dollar negativity increased as Washington showed few, if any, signs of reaching a deal on pandemic relief anytime soon. The longer wait for an aid package is causing more dollar-negative clouds to gather over America’s economic horizon. With economic fundamentals a key driver of EURUSD, all eyes Friday will be on revised euro zone second quarter growth.


The dollar pared declines after key jobs data surprised to the upside. Weekly jobless claims improved to 963,000 in the latest period, moving below the psychological one million mark for the first time in five months. While a big step in the right direction, the overall level of claims remains historically high, underscoring the urgency for Washington to strike a new aid package. Today’s data also continued a string of resilient data that suggested the economy may be in somewhat better shape than previously thought.

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