Currency Market Analysis

Oct 07, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar’s late Tuesday surge faded amid flickering hopes for some form of stimulus before the election. The greenback was broadly flat as gains against the yen and sterling offset weakness against the euro. Canada’s dollar was little changed as weaker oil capped upside. The dollar rallied and Wall Street tumbled Tuesday after President Trump tweeted that stimulus negotiations were on hold until after the election. But the president hours later called on Congress to approve a “Stand Alone Bill for Stimulus Checks,” suggesting some form of aid was possible before the Nov. 3 vote. Without fresh pandemic relief from Washington, Fed Chairman Powell this week warned of a potentially deeper economic downturn and a longer road to recovery. Markets will look for cues today from stimulus developments, the 2 p.m. ET release of the latest Fed minutes, and the 9 p.m. ET vice presidential debate.

CAD

Canada’s dollar firmed but eased below two-week highs in choppy, stimulus-driven trade. Improved risk sentiment after a late day fall the previous day offered support. Weaker oil markets, down 2% and below $40, threatened to undercut bouts of strength for the Canadian currency. For the latest on Canada’s economy before Friday’s influential September jobs report, market players today will eye the Ivey PMI barometer of business activity, due at 10 a.m. ET.  

EUR

The euro rebounded from a late Tuesday slide as the door appeared slightly ajar to Washington agreeing on market-friendly pandemic relief before America’s presidential election. Still, the euro kept below the previous day’s two-week high as elevated uncertainty checked its rise. Meanwhile, a weaker outlook for the French economy, the euro zone’s second largest, could add to downside risks facing the single currency. The stats bureau INSEE downgraded its outlook for Q4 growth to zero from up 1% a month ago.

GBP

Sterling slipped from three-week highs, pressured by elevated uncertainties related to Brexit and U.S. fiscal stimulus. The EU this week acknowledged a rising risk of a no-deal Brexit, given the stalemate in negotiations. A messy breakup would mean a near certainty of the Bank of England resorting to negative interest rates. The weak shape of Britain’s economy will be in focus Friday with August growth figures forecast to decelerate.


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