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Currency Market Analysis

Aug 24, 2020 | Currency Market Analysis

Global Themes

Stocks rose and the U.S. dollar fell, a sign of buoyant risk appetite to begin the new week. The euro, sterling and Canadian dollar edged up, boosted by Wall Street signaling a positive start after the S&P 500 closed Friday at fresh record highs. The greenback outperformed last week thanks to divergent data that favored the U.S. Preliminary August PMI surveys showed weakness in Europe and strength in the U.S. Key for the U.S. currency this week will be the Fed’s annual Jackson Hole, Wyo. conference of global central bankers. This year’s event will be held virtually due to the pandemic. The Fed could still use the Aug. 27-28 symposium to telegraph coming policy changes such as dollar-negative moves to cap Treasury yields or allow inflation to run hotter. The coming week also features key U.S. numbers on consumer confidence, weekly jobless claims and personal spending. 


Sterling rose Monday in step with stocks after it barely finished the previous week higher against the greenback. The pound maintained a negligible month to date gain despite a run of generally solid U.K. data last week. Pound-subduing Brexit uncertainty has returned to the fore after trade talks last week failed to make progress. The specter of a no-deal Brexit remains alive with the clock ticking down on the transition period that expires at year’s end.


Canada’s dollar strengthened to within close range of seven-month peaks against the greenback. Buoyant risk appetite with Wall Street futures pointed higher and oil markets up boosted Canada’s commodity-influenced currency. Whether the loonie sinks or swims this week may hinge on Canada’s second quarter economic report card Friday that’s forecast to show the pandemic spurred a massive 39.6% annualized contraction in GDP after it sank 8.2% in Q1.


The euro bounced above more than one-week lows as risk appetite helped it recover from downbeat European data Friday. Cracks may be starting to form in the euro’s bullish foundation with European infections rates on the rise and August indicators depicting a moderating economy. Germany’s Ifo survey Tuesday of business optimism should offer a key litmus test of euro sentiment. Forecasts call for the Ifo index to improve to 92.2 in August from 90.5 in July.

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