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Currency Market Analysis

Sep 24, 2020 | Currency Market Analysis

Global Themes

America’s recharged dollar climbed to fresh highs as markets remained on edge over mounting uncertainties. Canada’s dollar fell to seven-week lows while the euro and sterling hovered around two-month lows. When confidence in the global recovery falters, the dollar tends to shine. The greenback has caught a solid safe haven bounce as virus counts climb in many advanced economies, dampening hopes of a sustained recovery from the pandemic-induced recession. Doubts about Washington delivering more pandemic relief and the specter of a contested U.S. election outcome are also pressuring markets with Wall Street favoring its back foot. On tap today, more Capitol Hill testimony by the Fed chair and key weekly jobs data from the U.S. which are forecast to improve but remain historically high above 800,000. Mexico’s peso hit six-week lows ahead of an expected rate cut from 4.50% today from the country’s central bank.

GBP

Sterling rose above two-month lows after Britain’s finance minister announced a new jobs scheme to help sustain the recovery. The pound’s resilience so far is a sign that the new labor market program that begins in November could help slow an expected surge in unemployment. It also helped sterling at the margin that a gauge of retail spending unexpectedly increased in September. Volatility is expected to shadow sterling as Britain’s weak economy keeps pressure on the Bank of England to adopt negative borrowing rates.

EUR

The euro hit a two-month trough against the greenback after a smaller than expected rise in Germany’s Ifo index of business confidence kept the single currency on a vulnerable footing. The euro has shed about 2.5% against the dollar this month as Covid cases climb and threaten to undermine the bloc’s recovery. EUR/USD has tumbled nearly 4 cents since it scaled two-year highs in early September.  

USD

The dollar held near session peaks after U.S. weekly jobless unexpectedly rose. The latest number printed at 870,000 compared to forecasts 860,000 and the previous week’s upwardly revised 866,000. The dollar benefiting from weaker data is a clear sign that the U.S. currency is outperforming for the wrong reasons. Rather than enjoying fundamental support, the dollar is purely a haven play given the uptick in risk aversion.

CAD

Oil’s grip on $40 proved a slippery one, a factor behind the loonie’s fall today to seven-week lows. Persistent risk aversion has stalked commodity currencies this week as surging virus cases threaten to undermine recovery prospects. Rising Covid cases led Canada’s prime minister, Justin Trudeau, to vow more pandemic relief to help sustain the recovery. Wall Street keeping subdued bodes well for USD/CAD to sustain its upward bias at least over the short run.


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