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Currency Market Analysis

Oct 01, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar kicked off the fourth quarter weaker, weighed down by Washington’s renewed effort to reach a massive stimulus deal. The greenback clocked one-week lows against the euro, sterling and Canada’s dollar. Rival currencies are rising along with risk appetite on hopes that lawmakers may soon agree on fiscal stimulus of around $1.5 trillion to $2 trillion. Part of the dollar’s September surge was due to uncertainty over whether Washington would deliver more pandemic relief which pressured stocks and spurred a flight to safety. Stimulus talks and data will be in focus today. U.S. weekly jobless claims headline a busy calendar that also includes the ISM manufacturing index and consumer spending. The week’s main event looms Friday when America releases September employment which will be the last major look at the job market before the election.


A risk appetite-inspired boost pushed the euro to one-week peaks. Cautious optimism in Washington reaching an elusive stimulus agreement helped to overshadow worrisome news on Europe’s job market. Euro zone unemployment continued to rise, reaching 8.1% in August, the fifth monthly increase in a row. The big concern is that upward pressure on unemployment could intensify in the months ahead as government wage support schemes expire and a surge in Covid infections threatens another wave of business restrictions and possible furloughs.


The Canadian dollar climbed to session peaks, its highest in more than a week, as hopes for new stimulus from Washington weighed on the greenback. The rise in risk sentiment was uneven, though, as stock futures jumped but oil sagged with prices falling below September’s close above $40. It remains to be seen whether Washington indeed will soon agree on a fresh round of pandemic relief. Doing so would peel away a thick layer of uncertainty that contributed to the loonie’s September slide from early 2020 highs.  


The dollar favored session lows following a mixed bag of U.S. data. Weekly jobless claims improved but to a still-high 837,000. The Fed’s main gauge of inflation climbed more than expected to 1.6% in August, edging closer to the central bank’s average level of 2%. Personal spending rose by a solid 1% but the gain may be tough to sustain as incomes plunged nearly 3%. On balance, today’s data, while mixed, adds urgency on Washington to agree on more pandemic relief to bolster confidence in a sustainable recovery.


Sterling ebbed and flowed in volatile trade at the start of the fourth quarter. Sterling gains were capped by a souring in relations between the UK and EU which didn’t inspire confidence in the parties reaching an amicable trade agreement by year-end. Britian’s bid to break the Withdrawal Agreement led the EU to take legal action of its own against the UK. Meanwhile, British manufacturing slowed more than expected in September with its key PMI revised down to 54.1 from 55.2 in August.

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