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Currency Market Analysis

Sep 30, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar rose anew as markets traded with a defensive bias in the wake of the first debate between Donald Trump and Joe Biden. The euro and sterling were down around 0.3% against the dollar. Canada’s dollar was little changed. A combative debate between the president and former vice president reinforced worries about a contested outcome of America’s coming election. Markets are also on edge over surging coronavirus cases and doubts about whether Washington will deliver more fiscal aid to bolster a vulnerable recovery. The U.S. dollar has led the pack this month as global risks reached a tipping point and spurred a flight to safety. The U.S. dollar index has risen 2% in September, putting it on track for its best monthly performance of the year. With the first debate out of the way, attention pivots back to the economy with U.S. data today jobs and growth.


Sterling fell in choppy trade on the last day of the month. The pound had little reaction to news that British growth proved slightly less bad during the second quarter when the world’s No. 5 economy contracted 19.8%, a record plunge, compared to the previous estimate of -20.4%. Britain’s parliament today approved a law, dubbed the internal market bill, to allow the government to break its separation agreement with the EU.


The U.S. dollar was poised to close out its best month of the year higher as the combative presidential debate cast a pall over markets and boosted the haven greenback. Recovery-friendly data also worked in the dollar’s favor. ADP job growth smashed forecasts with a surge of 749,000 in September. The final reading of U.S. second quarter growth printed at -31.4%, a several tick improvement from the last estimate of 31.7%. The week’s big event looms Friday when America releases the final nonfarm payrolls report before the election.


Canada’s dollar was broadly flat as oil pared declines and growth data matched forecasts, rising for a third straight month. As expected, Canada’s economy grew at a 3% pace in July. While Canada’s economy continues to grow, it’s doing so at a moderating pace as it followed June’s 6.5% expansion. Forecasts call for continued moderation with forecasts of August growth pegged at 1%. The Bank of Canada expects the economy’s fast reopening stage to give way to a slower recuperation phase, potentially keeping the door open to stronger stimulus.


The euro deepened a September slump as it fell against the dollar, with EUR/USD on pace to shed nearly 2% for the month. Surging Covid cases in Europe have dampened once bullish optimism over the bloc’s recovery from the pandemic-induced downturn. The stronger dollar overshadowed German data that showed faster than expected retail spending (3.1% vs forecasts of 0.5%) in August and lower than expected unemployment (6.3% vs 6.4) in September.

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