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Currency Market Analysis

Sep 28, 2020 | Currency Market Analysis

Global Themes

The greenback surrendered some strength as global equities rebounded. Consequently, the U.S. dollar edged down from July highs against the euro and sterling and its strongest since early August versus the Canadian dollar. The buck has outperformed of late amid a crescendo in worries about another wave of the coronavirus leading to recovery-denting business restrictions. The U.S. dollar index rallied the better part of 2% last week for its best performance since April. A busy week awaits with the first presidential debate Tuesday followed by top tier data from around the globe. America’s election seems less about who wins but more about the margin of victory. A contested election outcome would threaten to heighten already elevated uncertainties that are weighing on markets and supporting the greenback. America’s September jobs report Friday is forecast to show that hiring slowed to around 850,000 in September from August’s nearly 1.4 million.


A big percent-plus rally in sterling boosted the U.K. currency to one-week peaks. If sterling is anything, it’s volatile. The pound got a lift from constructive Brexit developments that offered hope of the U.K. and EU reaching a trade agreement and thereby avoiding a messy, no-deal split in the months ahead. Nevertheless, volatile broader markets, coupled with the expectations that Britain’s weak economy could lead the Bank of England to deploy negative interest rates, threaten to undercut sterling rallies.  


The euro rose above two-month lows as improved, though still wobbly, risk sentiment tempered safety flows into the greenback. The euro has fallen from two-year highs as surging coronavirus cases in Europe dealt a blow to the narrative that Europe was on a faster track to recovery than the U.S. Key numbers to watch on the health of the euro zone's recovery are unemployment data Thursday, seen rising to 8.1% in August from 7.9% in July, and preliminary inflation Friday that’s forecast to hold below zero in September.  


Canada’s dollar firmed from more than seven-week lows as the greenback slipped and risk sentiment improved. Higher oil above $40 also lent support to Canada’s commodity-driven currency. Canada’s main data point this week arrives Wednesday with monthly growth. July GDP likely grew for the third month in a row, but forecasts call for a slower pace of 3% from June’s robust rate of 6.5%. The midweek growth survey will serve as a guide for third quarter growth prospects which appear poised for a big bounce back after the economy plunged at a record rate of more than 38% in Q2.

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