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Currency Market Analysis

Aug 18, 2020 | Currency Market Analysis

Global Themes

U.S. dollar headwinds intensified overnight as the greenback slid to fresh 27-month lows against a basket of peers. In a broad swoon, the dollar fell to five- and six-month lows against sterling and the loonie, hit its weakest since May 2018 versus the euro, while the Swiss franc notched 5 ½ year highs. Dollar bears are pouncing on low and falling U.S. yields, and worries that the recovery is decelerating. A lighter week of U.S. data has left the market chewing on last week’s underwhelming report on U.S. retail sales that showed a sharp slowdown in consumer spending. Meanwhile, the S&P 500 index closing in on historic highs has sapped safe haven demand for the dollar. Expectations that Wednesday’s Fed minutes could sound the dovish alarms are also pressuring the U.S. unit.


Sterling took renewed aim at highs for the year, rising to fresh five-month peaks in the process. The pound continues to capitalized on the greenback’s travails which, for now, are masking U.K.-centric vulnerabilities such as a pandemic-tattered economy and the still uncertain outlook for London and Brussels to clinch an economy-friendly trade deal by year’s end when the transition period is set to expire. Britain issues pound-sensitive inflation figures Wednesday that are forecast to remain around depressed levels. 


A stronger loonie flirted with seven-month peaks against the woozy greenback. Oil slipped but kept above $42 which, along with Wall Street signaling a positive start Tuesday, supported loonie-positive risk sentiment. Newfound strength could be tested by Canadian data Wednesday on inflation and Friday on consumer spending. Outcomes consistent with the recovery gaining momentum would tend to keep the loonie biased higher.


A sinking U.S. dollar helped the single currency notch new May 2018 peaks. The euro is now a cent away from a significant psychological level that, if breached, could pave the way to accelerated gains. Daunting event risks this week will offer an opportunity for the euro to potentially add to its gains. But if the euro fails to extend its rally, failure to do so could catalyze another bout of consolidative weakness. 

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