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Currency Market Analysis

Aug 14, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar steadied ahead of key news today on America’s economic locomotive: The consumer. The greenback was broadly flat as losses against sterling offset a firmer tone against commodity rivals from Canada and New Zealand. The euro also steadied, a reflection of subdued risk sentiment. Disappointing data from China checked a broader market rally and helped the dollar keep above two-year lows. Chinese consumer spending tumbled for the seventh month in a row in July while factory growth underwhelmed. U.S. retail sales today at 8:30 a.m. ET are forecast to rise for the third straight month. The risk for the dollar is that positive news on the consumer could take a back seat to uncertainty in Washington about when policymakers will reach a deal on another round of pandemic relief.


Sterling, a barometer of greenback sentiment, rose as it weathered for now a pullback in risk appetite following subpar consumer data from the world’s two biggest economies. EURGBP weakness also spilled over to support the pound against the dollar. Sterling was pacing a weekly gain against the greenback despite data this week that highlighted the extent to which the U.K. economy underperformed its big peers from the U.S. and Europe during the second quarter.


Are cracks starting to form forming in the euro’s bullish façade? The single currency steadied after negative numbers on euro zone second quarter growth and employment flew in the face of its otherwise bullish narrative. Data confirmed that the bloc contracted at a record clip of 12.1% during the April-June quarter. Moreover, the nearly 3% tumble in employment last quarter also proved historically bad.


Subdued risk sentiment tapped a brake on the loonie’s surge this week to 6 ½ month highs. Wall Street was poised for a tepid start, with oil keeping above $42 but down 0.25% on the day. Meanwhile, fresh evidence of a recovering Canadian economy from a pandemic-induced downturn should help limit scope for loonie weakness. Manufacturing sales, a gauge of factory sector health, beat forecasts with a robust gain of 20.7% in June. The data, a key ingredient of quarterly growth, can help pave the way to a third quarter comeback.


The U.S. dollar lost ground after underwhelming retail sales heightened already intense pressure on Washington to deliver more pandemic support. Consumer spending rose for a third straight month but the 1.2% increase undershot forecasts of a 1.9% gain. While the buck has spent the past week treading water above two-year lows, it’s unlikely to turn the corner in a meaningful way until the gathering economic clouds show signs of abating.  

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