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Currency Market Analysis

Sep 14, 2020 | Currency Market Analysis

Global Themes

The Fed in the spotlight this week dulled the U.S. dollar’s sheen. Rival currencies like the euro, sterling and Canadian dollar firmed against the greenback. The dollar carries a two-week winning streak into a midweek Fed announcement. The dollar has found safe haven favor of late from renewed volatility that’s engulfed equities. The Fed issues a policy decision Wednesday, along with fresh economic forecasts. The Fed may decide to hold off for now on major moves following its shock and awe actions since March. The Fed could use its forward guidance to signal an even longer wait for a dollar-positive rate hike after its recent vow to allow inflation to run hotter. The market has priced in a dovish message from the Fed so one that merely meets market expectations might not dramatically sway the buck.

GBP

Sterling followed up its worst week since March with a gain, as pre-central bank caution pressured the greenback. The pound last week shed nearly 5 cents, or about 4%, against the greenback as Brexit uncertainty reached a fever pitch. A souring in relations between Britain and Brussels raised the risk of a disorderly split at the end of the year. U.K. event risks appear a bit daunting and a potential source of sterling weakness with unemployment Tuesday expected to rise and inflation Wednesday forecast to fall. The data will set the tone for a Bank of England policy decision Thursday. 

CAD

The loonie edged up against the softer U.S. dollar. Still, sentiment was mixed for the Canadian currency with oil markets on choppy terrain. Crude slipped nearly a percent to below $37, a decline that doesn’t bode well for commodity-linked currencies. The loonie this week will look for domestic catalysts from inflation Wednesday and retail sales Friday. Core inflation is expected to hold around 1.3%, below the Bank of Canada’s 2% goal, while consumer spending is forecast to slow to a 1% increase in July after June’s record jump of 23.7%.

EUR

The euro firmed toward the top of its range, boosted by risk appetite and pre-Fed caution that weighed on the greenback. The euro has settled into a range after its burst earlier this month to two-year peaks. Europe’s single currency will take its cues this week from the Fed and data Tuesday on German investor optimism. Forecasts call for German morale to tick lower in September, news that if realized could keep a fairly tight lid on the euro. 


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