Currency Market Analysis

Sep 15, 2020 | Currency Market Analysis

Global Themes

America’s dollar sputtered as risky assets rose in the wake of recovery-friendly data from China and Europe. The buck slouched against the euro, sterling and Canada’s dollar, and hit its weakest in 6 months against the Mexican peso. Risk assets held the upper hand after consumer spending in China rose for the first time this year and German investor morale unexpectedly brightened. Sterling rebounded from seven-week lows thanks to a weaker dollar and stronger risk appetite. The pound also benefited from growing division in the Conservative ranks over a proposed bill aimed at breaking the Brexit treaty. The greenback has sputtered on expectations that the Fed Wednesday would word its forward guidance in a way that drops a heavier anchor on yields.

USD

The U.S. dollar favored its back foot on the eve of the Fed’s policy decision Wednesday, its final one before the election. America’s central bank is likely to emphasize a decidedly low rate outlook for years to come to help nurse the world’s biggest economy back to health after a record contraction last quarter. The Fed’s new forecasts for the economy, if upgraded, could potentially put some wind in the dollar’s sails. The buck pared declines after bullish Empire State and import prices data strengthened the case for the Fed to upgrade its outlook. 

CAD

Canada’s loonie rose as the greenback weakened and risk appetite strengthened. Higher oil prices flirted with $38, underpinning commodity assets. Canada’s dollar was little moved by domestic data showing a weaker than expected rise of 7% in manufacturing sales in July as it helped that the previous number proved even stronger with a revision to a 23% spike from nearly 21%.

EUR

The euro climbed to the top of the range after a surprise brightening in German investor confidence. Germany’s ZEW index unexpectedly rose to 77.4 in September versus forecasts of a sub-70 print. The data offered evidence of the bloc’s recovery continuing apace and weathering elevated uncertainties related to the risk of a disorderly Brexit that could disrupt trade across the continent.  

GBP

Sterling recovered from seven-week lows and its worst week in months thanks to improved risk sentiment and the perception of a somewhat narrower path for Britain’s prime minister to pass a Brexit treaty-breaking bill. Rising Conservative opposition cast some doubt on the bill clearing Parliament. Passing of the so-called Internal Market Bill is seen materially raising the risk of a disorderly, no-deal Brexit at the end of the year. Meanwhile, an expected surge in U.K. unemployment started to take shape in July, as the nation’s jobless rate rose to a pandemic-peak of 4.1% from 3.9%. The nation’s jobless rate is at risk of potentially doubling by year-end after a government jobs scheme ends next month. 


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