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Currency Market Analysis

Sep 25, 2020 | Currency Market Analysis

Global Themes

Greenback strength continued Friday with the U.S. unit sustaining two-month highs and on pace for its best week since the spring. The euro, sterling and Canada’s dollar were at or near two-month lows. The dollar’s main source of strength this year is back in vogue and that’s a dimmer outlook for global growth as coronavirus infections accelerate. Wall Street is poised for its fourth straight week of declines. Surging Covid cases are leading to renewed business restrictions, darkening prospects for global growth. While the dollar’s longer run outlook hasn’t materially improved, it stands to outperform over the near term as market volatility remains elevated. U.S. Election Day drawing closer has added another layer of uncertainty that’s been constructive for safe harbor assets. Renewed hopes for Washington to agree on a massive $2 trillion-plus fiscal aid package could ease market worries and check demand for the U.S. dollar.

CAD

Risk aversion and weaker oil pressured Canada’s commodity-linked dollar which kept within arm’s reach of seven-week lows. Crude closed above $40 Thursday but a 1% decline pushed prices back below that level. A dimmer outlook for global growth has undercut the loonie’s recent bounce to early 2020 highs. The next important look at Canada’s economy looms on Sept. 30 when growth figures for July are due.

GBP

A weaker U.K. pound Friday kept within striking distance of two-month lows. A stronger dollar and weakening prospects for British growth have weighed on sterling. For the week, GBP/USD was on pace to surrender nearly 2% in value against the greenback. Data next week (Sept. 30) is forecast to confirm that Britain’s economy plunged at a record rate of more than 20% during the second quarter.

USD

The dollar index kept aloft near two-month peaks after mixed news on U.S. durable goods which rose 0.4% in August, below forecasts of a 1.5% increase. The better news came on the component of business spending which surprised to the upside with a 1.8% increase. The data, on balance, appears solid enough to cement the dollar’s best weekly performance, up nearly 2%, since at least April.

EUR

The euro surrendered more of its 2020 gain against the greenback, a currency that’s benefiting from rising market volatility and worries about the coronavirus damaging global growth. The euro has shed two cents and fallen to two-month lows. The euro limps into a daunting data week ahead for Europe with numbers due on euro zone unemployment and inflation. Evidence of a moderating recovery from the pandemic would risk another leg lower for the single currency.


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