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Currency Market Analysis

Aug 19, 2020 | Currency Market Analysis

Global Themes

America’s anemic dollar edged above fresh lows, though sentiment remained decidedly negative. The buck steadied above its weakest level in more than two years against the euro and its lowest versus Canada in seven months. The U.K. pound was perched near 2020 highs, as it continued to thrive in the weak dollar environment. The Fed’s herculean efforts to ease the economic blow from the pandemic is largely behind the S&P 500 Index returning to record highs and the dollar revisiting multiyear lows. The dollar is also suffering from recovery doubts following a run of weaker than expected data. The spotlight today will shine brightly on America’s central bank as the Fed at 2 p.m. ET will release the juicy details of its late July meeting. Minutes that sound resoundingly dovish and depict a central bank ready to ramp up already aggressive stimulus could keep the dollar biased downward.

EUR

The euro steadied after ascending this week to 27-month peaks. The euro – and sterling – remain the main games in town as aggressive central bank stimulus fuels a risk rally at the expense of the greenback which tends to flourish when investor confidence diminishes. The euro’s next fundamental steer arrives with influential European PMIs on Friday that, if better, could lift the euro above a key psychological level it last touched in May 2018.  

CAD

Canada’s dollar kept near seven-month peaks, boosted by the diving greenback and oil, while lower today, keeping in vicinity of five-month highs above $42. The loonie had its rise checked somewhat by surprisingly cooler inflation. Canada’s consumer price index slowed more than expected to a 0.1% annual increase in July after rising 0.7% in June. The Bank of Canada’s core, or common, gauge of inflation also moderated, slowing to an annual rate of 1.3% from 1.5%. Weaker inflation runs the risk of slowing the loonie’s surge as it underscored an outlook of low interest rates for longer.

GBP

Sterling held firm and near highs for the year after U.K. data topped expectations. Britain’s cost of living increased from dangerously low levels in July, as the consumer price index jumped to 1% from 0.6% where it was forecast to remain. Sterling’s primary pillar of support is the weak dollar. Consequently, any reminder of the weak shape of Britain’s economy could revive expectations of lower, though maybe not negative, Bank of England borrowing rates.


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