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Currency Market Analysis

Aug 26, 2020 | Currency Market Analysis

Global Themes

Dollar 'durable' after data

The U.S. dollar treaded water ahead of a big speech tomorrow by the Fed chairman. The euro softened while rivals from Britain and Canada were little changed. The dollar has stabilized since hitting two-year lows last week as bets on its continued decline have become a bit overcrowded. Whether the dollar’s steadier performance has legs may hinge on a speech Thursday by Jerome Powell. Expectations are rife that Mr. Powell will signal a central bank resolve to allow inflation to run hotter since it’s long struggled to attain the 2% level that it deems as healthy. Remarks that are no more dovish than markets already anticipate would run the risk of disappointing dollar bears, potentially allowing scope for a dollar rebound. Mr. Powell is due to speak Thursday at 9:10 a.m. ET at the Fed’s virtual summit of global central bankers in Jackson Hole, Wyo.


The euro fell as single currency bulls booked profit on the eve of the week’s marquee event risk: A much-anticipated speech by the Fed chairman. Moreover, the euro appears to have peaked for now as record long positions limit scope for meaningful appreciation. The euro had strengthened Tuesday as investors focused on the bright side of mixed German data. The fourth straight monthly rise in German business optimism overshadowed record weak growth in the second quarter when the economy contracted by nearly 10%.


The loonie fell as market caution reigned ahead of a big speech by the Fed chairman. Wall Street futures and oil prices were subdued after recent gains. The loonie clocked seven-month highs this week as the dollar fell and Wall Street’s S&P 500 powered to fresh peaks. After the Fed chair’s remarks Thursday, attention will shift to important Canadian second quarter growth on Friday.  


Sterling was broadly steady ahead of remarks Thursday from U.S. and U.K. central bankers. The Fed chairman may set the doves loose and signal a central bank resolve to allow inflation to moderately top its 2% target. Mr. Powell’s U.K. counterpart, Andrew Bailey, may not deviate much from less dovish remarks earlier this month when the Bank of England governor acknowledged negative rates were in the central bank’s toolbox but downplayed prospects of their imminent implementation.


The U.S. dollar rose to session highs after durable goods smashed forecasts to the upside. Durable goods soared by 11.2% in July, far above forecasts of a 4.3% increase. The subcomponent on business spending jumped by nearly 2%, meeting forecasts. The data, while volatile and only preliminary, eased concerns about the economic outlook.

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