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Currency Market Analysis

Sep 18, 2020 | Currency Market Analysis

Global Themes

A stronger yen and the Fed’s low rate assurance for longer put the greenback’s modest winning streak in jeopardy. The buck was little changed overall Friday but the yen, the week’s star performer, notched seven-week peaks, putting the icing on its best week in three months. The dollar has fared better over the last few weeks as stumbling stock markets triggered a flight to safety. The dollar gains haven’t been the durable variety for a while, particularly after the Fed lengthened by a year to 2023 a vow not to boost interest rates. Conviction in the Fed’s low rate guidance gained traction this week after weekly jobless remained stubbornly high, while the disappointing pace of improvement spurred concern that the labor market recovery may be flagging. Canada’s dollar was on a neutral footing ahead of a report today on domestic consumer spending.


While softer Friday, the U.K. pound was on track to get back in the weekly win column after enduring its worst week in six months. Helping sterling defy for now significant downside risks, U.K. consumer spending proved slightly stronger than expected last month. British retail spending rose 0.8% in August, while the previous number enjoyed an upgrade. Still, the pound has its share of bears given the daunting outlook for Britain’s economy. A jobs preserving scheme is due to expire soon. Downside growth risks, which include Brexit uncertainty, have the Bank of England giving greater consideration to pushing borrowing rates below zero.


The euro underperformed against its safer rivals from the U.S. and Japan as mostly subdued global equities dampened risk sentiment. The euro was little changed for the week as bullish news on German investor confidence was counterbalanced by the Fed upgrading its outlook for the world’s biggest economy this year. Next week looms importantly for the euro when preliminary, or flash, PMI surveys print on Sept. 23. Evidence of the bloc’s recovery gaining steam could keep the euro within striking distance of multiyear peaks.


The loonie weakened following underwhelming data on the country’s consumer. It also didn’t help that risk sentiment wilted a bit with Wall Street subdued and oil’s multiday rally losing steam. Oil prices slipped after topping $41. Canadian retail sales rose by 0.6% in July, missing forecasts of a 1% rise and following a bumper June when spending, while revised lower, surged by 22.7%. The loonie stuck to the range as the data came with a forecasts of stronger spending in August with Canada penciling in a 1.1% increase.


The New Zealand dollar soared to 1 ½ year highs following recovery-friendly remarks from the nation’s finance chief. The reassuring comments from the finance minister suggested a lower risk of the Reserve Bank of New Zealand, which issues its next statement on Sept. 23, resorting to negative interest rates.

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