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Currency Market Analysis

Aug 21, 2020 | Currency Market Analysis

Global Themes

Signs of a crack in Europe’s recovery helped the U.S. dollar extend a rebound from two-year lows. The euro slipped to one-week lows while the U.K. pound and Canadian dollar kept south of seven-month peaks. The euro sat two cents below 27-month peaks after data offered evidence of Europe’s recovery slowing in the wake of a rise on Covid-19 infections. A gauge of euro zone business growth unexpectedly slowed, falling by more than 3 points to 51.6 in August. Data from France, the bloc’s No. 2 economy, was particularly troubling as manufacturing activity unexpectedly contracted. While the dollar stands to benefit from renewed euro volatility, it remains on fundamentally shaky ground after weekly jobless claims climbed back above 1 million, a level consistent with historically high unemployment.


Euro buyers are catching a break and some relief with the single currency down more than two pennies from 27-month peaks. Optimism over Europe’s recovery suffered a setback in downbeat PMI surveys. A gauge of euro zone business activity unexpectedly slid by more than 3 points to 51.6 in August, following a strong July. France fared even worse as its factory sector unexpectedly contracted, wrongfooting forecasts of faster growth. The downbeat data spurred more to book profit on record long euro positions.


Canada’s dollar was weighed down by weaker stock and oil markets which overshadowed a second straight month of robust consumer spending. Broader markets were pressured by worries about the weak shape of the world economy following disappointing data from Europe. Canadian retail sales soared by 23.7% in June, topping May’s upgraded 21.2% surge. But the marked spike in consumer spending isn’t expected to last with a flash estimate of July spending pegged at pedestrian 0.7%.


Britain’s resilient pound tracked European currencies lower against the rejuvenated greenback. Bullish U.K. data took a back seat to Brexit pessimism and a stronger dollar. UK and EU officials acknowledged scant progress in trade talks this week, keeping alive the risk of an economy-damaging no-deal split when the transition period expires at the end of the year.

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