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Currency Market Analysis

Sep 08, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar emerged refreshed and energetic after America’s long holiday weekend. The buck flirted with two-week highs against the euro, while it climbed to four-week peaks against sterling. A sharp 6% slide in oil to below $38 drove commodity currencies, like the Canadian dollar, lower. Weaker stocks are fanning risk aversion and, consequently, appetite for the greenback. The euro favored a weaker bias ahead of the week’s main event: An ECB policy decision on Thursday at which policymakers could attempt to jawbone the single currency lower. Meanwhile, a run of better U.S. economic data also has translated into support for the dollar. Weekly jobless claims, while still elevated, reach a pandemic low below 900,000, while America’s jobless rate declined by nearly two percentage points to 8.4% in August. 


Sterling tumbled by a percent to four-week lows on the specter of a rising risk of an economy-squeezing no-deal Brexit in the months ahead. Britain and the EU Tuesday embarked on a fresh round of trade talks ahead of an October deadline to reach a deal. Brexit angst has shaved more than three cents off the pound’s value since it surged to 2020 highs a week ago. 


The euro neared two-week lows on caution ahead of an ECB policy announcement Thursday when the central bank president, Christine Lagarde, could use the occasion to jawbone the single currency lower. EURUSD has risen by 5% so far this year, while it’s powered some 10% higher from its March low. The euro’s rapid rebound can dial up economic headwinds by making the bloc’s prized exports more expensive. 


Canada’s dollar neared two-week lows as global markets slipped and oil plunged 6% to below $38. USDCAD has rebounded about two cents since falling to 8-month lows last week below a key psychological level. Meanwhile, the Bank of Canada looms Wednesday when it will render a policy decision. Expectations call for the BOC to keep its main lending rate parked at 0.25%. A policy statement that plays down better data and signs of a V-shaped recovery could help the greenback keep its chin above January lows.

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