Currency Market Analysis
Sep 23, 2020 | Currency Market Analysis
The U.S. dollar is keeping buoyant amid a deepening sea of global uncertainties. Extending a September rebound, the greenback Wednesday climbed to six-week highs against the Canadian dollar and was at or near two-month peaks against the euro and sterling. Investors found another reason to seek cover in the buck after European data, while mixed, was consistent with the bloc’s recovery losing steam. Preliminary numbers showed a surprise contraction in German and euro zone services growth in September. European weakness stood in contrast to bullish U.S housing data Tuesday that showed the fastest pace of existing home sales in nearly 14 years in August. Most global stocks bounced higher but oil kept subdued just below $40, signaling still cautious risk sentiment.
The euro neared two-month lows against the greenback, weighed down by data showing a surprise contraction in European services growth in September. The data added to concerns over a second wave of Covid-19 infections dealing a material setback to the bloc’s recovery prospects. Cracks have formed in the euro’s bullish façade with EUR/USD falling through its 50-day moving average.
Britain’s volatile pound fell to two-month lows after the government implemented fresh restrictions to help limit the surge in coronavirus infections. The measures could last through the winter, an extended period likely to increase already stiff headwinds on the British economy. Meanwhile, preliminary or ‘flash’ surveys of U.K. manufacturing and services growth showed a slower pace of growth.
Fragile risk sentiment and weaker oil below $40 drove the loonie to six-week lows against the greenback. Rising uncertainties related to the coronavirus and global growth have increasingly pushed skittish investors to the safety of the world’s most liquid currency, the greenback. The loonie will be all ears today when Canadian Prime Minister Justin Trudeau is set to discuss another round of economy-boosting fiscal support to help households and businesses weather the pandemic. Down Under, meanwhile, the Aussie and kiwi dollars tumbled amid rising interest rate cut expectations.
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