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Currency Market Analysis

Sep 09, 2020 | Currency Market Analysis

Global Themes

Caution reigned and so did the U.S. dollar amid a risk-wary market backdrop. The greenback held firm near three-, four- and six-week highs versus the Canadian dollar, euro and sterling respectively. The tumble in tech stocks abated with futures signaling gains when trading gets underway. Currencies otherwise observed a central bank vigil ahead of key monetary policy decisions over the coming week. Canada today at 10 a.m. ET is expected to keep its main borrowing rate steady at historic lows of 0.25%. The ECB looms Thursday followed by the Fed next week. The ECB is expected to hold fire on stronger stimulus but it could attempt to talk down or slow the euro’s ascent to multiyear highs given the economic headwind it represents.

GBP

Sterling’s slide from 2020 highs gathered pace, pushing the U.K. unit to six-week lows. Traders are diving off the pound’s bandwagon with Brexit tensions running higher and time running shorter on authorities to strike an elusive trade agreement. Meanwhile, expectations that U.K. data Friday could show a slower pace of monthly growth added traction to the pound’s more than 5-cent slide from December 2019 highs.

CAD

The loonie stabilized from three-week lows as it shadowed broader stock and oil markets a bit higher. Moves were muted ahead of a policy announcement today at 10 a.m. ET by the Bank of Canada. No change to the central bank’s interest rate of 0.25%, an all-time low, is expected. Canada’s economy is showing many of the hallmarks of a V-shaped recovery. Central bankers, though, could still emphasize high uncertainty over the growth outlook with Covid yet to be contained.

EUR

The euro slid to four-week lows in the run-up to an ECB policy decision Thursday. The euro has fallen by 2 ½ cents from two-year highs on the chance that the ECB could flag currency strength as among the downside risks facing the bloc’s economy. The stronger euro, which has appreciated by 5% YTD and about 10% from March lows, threatens to prolong dangerously low inflation and make the bloc’s exports, a leading growth engine, less competitive.


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