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Currency Market Analysis

Sep 11, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar was mixed but generally subdued as the euro held firm. The euro enjoyed a central bank lift after the ECB this week left policy unchanged and signaled it wasn’t losing much sleep over the single currency’s big bounce of more than 10% from March lows. Aggressive, Brexit-induced selling that’s engulfed the U.K. pound eased a bit but not before sterling crashed to seven-week lows. Canada’s dollar was little changed but poised for a down week, a reflection of stock and oil market gyrations. While the trade-weighted U.S. dollar softened Friday, it was still on track for a second straight weekly gain, a sign that it may have formed a meaningful bottom after sinking last week to fresh two-year lows.


The loonie traded mostly sideways, though with a fragile bias with oil markets lower. The price of crude slipped by more than 0.5% to $37. The loonie found a momentary pick-me-up this week from a somewhat upbeat Bank of Canada. The central bank was bullish on third quarter growth but cautious thereafter which kept USD/CAD confined to a range.


Aggressive selling pushed the U.K. pound to seven-week lows, a colossal reversal from levels last week when it had scaled 2020 peaks. Another week of unfruitful trade talks between Britain and the EU raised the specter of a no-deal split next year. A no-deal break with the EU is seen as the biggest threat to Britain’s economic recovery from the deep recession from the pandemic. Sterling faces event risks next week in the form of a Bank of England decision Thursday, and numbers on unemployment (Tuesday), inflation (Wednesday) and consumer spending (Friday).


US inflation warmed but the greenback kept its cool with the Fed signaling a tolerance to let prices run hotter. America’s consumer price index rose at an annual rate of 1.3% in August, above forecasts of 1.2% and July’s 1.0% increase. While important, inflation is likely to be a back-seat driver of the dollar after the Fed last month signaled a renewed resolve to allow prices to run a bit above its 2% goal to help compensate for years of missing its target.


The euro rose but kept below its post-ECB decision peaks. Euro bulls were emboldened after the president of the ECB, Christine Lagarde, didn’t signal significant concern yet over the single currency’s sharp bounce back from March lows. Renewed stock market volatility checked the euro’s rise along with crowded market positioning.

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