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Currency Market Analysis

Sep 10, 2020 | Currency Market Analysis

Global Themes

The euro climbed a penny above four-week lows after the ECB left monetary policy unchanged. A pivot back to Europe tapped a brake on the U.S. dollar’s recent winning streak to multiweek highs against a broad basket of rivals. The ECB’s decision to maintain its base interest rate at zero was widely expected. The big focus for markets is ECB President Christine Lagarde’s news conference. Ms. Lagarde has a delicate balancing act of acknowledging improved economic data but being careful about not stoking another economy-unfriendly surge in the euro. If the ECB should flag euro strength as a significant obstacle to achieving its near 2% inflation goal it could leave the single currency vulnerable to a decline over the short run...


The euro moved above four-week lows after the ECB left monetary policy unchanged. Key for the euro’s coming prospects will be whether its summer surge poses a significant downside risk to the bloc’s nascent recovery from the pandemic-induced downturn. The euro strengthened after the ECB’s post-meeting presser played up a strong recovery from the pandemic. The central bank’s forecasts for growth expect a somewhat smaller contraction of 8% for 2020, an upgrade from it June projection of -8.7%. Ms. Lagarde said the ECB was monitoring the euro’s strength but stopped short of taking a significant swipe at its economy-damping rise.


Sterling kept within striking distance of six-week lows against the U.S. dollar amid the marked escalation in Brexit tensions between London and Brussels. The two parties have made little progress toward a permanent trade agreement, leaving Britain at risk of no-deal split early next year, a scenario that could intensify already strong economic headwinds related to the pandemic.


The U.S. dollar fell after weekly jobless claims idled at a high level which converged with a cautiously upbeat message from the ECB. Jobless claims printed at 884,000 for a second straight week, missing forecasts of an improvement down to 846,000. The data was consistent with a moderating trend of employment growth which keeps alive the risk of further dollar-negative stimulus from the Fed next week.


The central bank-inspired Canadian dollar held more than a cent above three-week lows against the greenback. The loonie caught a lift after the Bank of Canada Wednesday left interest rates unchanged at historic lows of 0.25%. The boost came from policymakers acknowledging that the economy had fared better than expected in the third quarter. But the bank’s Q3 bullishness may not translate into meaningful support for the loonie as the robust reopening phase is expected to give way to a slower and choppier recuperation phase from Q4.

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