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Currency Market Analysis

Aug 25, 2020 | Currency Market Analysis

Global Themes

Risk-on, dollar off was the name of the game as a confluence of factors buoyed risk sentiment. The U.S. dollar was mixed as it posted a range of declines against the euro, sterling and Canadian dollar. Risk appetite, though, boosted the greenback against the yen, another haven destinations that investors often abandon when broader markets strengthen. The dollar kept to the range, albeit the lower end, with markets boosted by constructive trade talks between the U.S. and China, vaccine optimism, and the S&P 500 on a record run. Expectations that a Thursday speech by Fed Chairman Jerome Powell may sound dovish also weighed on the greenback. Meanwhile, better than expected data from Germany, the world’s No. 4 economy, spurred a fresh round of euro buying. 

GBP

A weaker U.S. dollar put a sturdier floor under sterling. The pound rose as the safe-haven dollar slid as a confluence of risk-friendly factors bolstered broader markets. That helped the pound sidestep disappointing news on the domestic consumer, as a gauge of retail sales unexpectedly contracted in August. A dearth of British data this week has led the pound to look to external drivers for direction. 

CAD

A firm loonie kept within reach of seven-month peaks as the weaker greenback and higher oil near $43 boosted sentiment toward commodity assets. Reports that trade talks today between the U.S. and China went well also supported currencies with close links to global growth. How the loonie ultimately fares this week may depend on Canada’s second quarter growth report Friday that’s forecast to show the economy took a near 40% plunge.

EUR

The euro rebounded from one-week lows  after German data tempered recovery concerns. The Ifo survey of business confidence improved for the fourth straight month with the print of 92.6 in August topping forecasts of 92.2. Germany’s second quarter contraction proved slightly less dire with GDP getting revised to minus 9.7% from an initial estimate of minus 10.1%. Still, the slightly better outcome was more than double the previous record contraction of 4.7% in Q1 2009. 


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