Currency Market Analysis

Oct 08, 2020 | Currency Market Analysis

Global Themes

America’s dollar treaded water ahead of data that may giving wavering stimulus hopes a jolt. The buck was broadly steady against the euro and sterling, while the Canadian dollar strengthened to fresh multiweek peaks. Weekly jobless claims today are expected to improve but hold around historically high levels above 800,000 – some four times above their pre-pandemic levels. Disappointing news on the job market today would dial up already elevated pressure on Washington to strike a stimulus deal. Moreover, prospects of a Biden win or even a blue wave victory could ultimately herald a larger, economy-boosting, dollar-weakening stimulus package. Initial jobless claims today at 8:30 a.m. ET are forecast to improve to a still-high 820,000 from the previous print of 837,000.

CAD

A sideways greenback and stronger oil proved a recipe for Canadian dollar outperformance as it rolled to fresh two-week peaks. The sense that sooner or later Washington would agree on massive consumer, business and economy-boosting stimulus buoyed risk sentiment. A 2% pop in oil lifted prices back above $40, putting a tailwind on commodity-sensitive currencies.  

GBP

Dovish remarks from the head of the Bank of England weighed on the pound, keeping it below three-week highs. BOE Gov. Andrew Bailey said today that risks to the British economy were “very much on the downside,” a worrisome tone that opened the door wider to prospects of negative interest rates becoming a reality. Mr. Bailey said the U.K. central bank was ready to step up stimulus to dampen the economic impact of a surge in Covid infections.

EUR

The euro steadied near two-week peaks as risk appetite overshadowed a dovish set of minutes from the previous ECB meeting. The ECB acknowledged euro strength since July as a factor behind the subdued outlook for inflation which is running below zero, far below the central bank’s near 2% goal. The dovish minutes depict a central bank in easing mode and ready to deploy stronger support in the face of downside risks from Brexit, America’s election and rising Covid infections across the continent.

USD

The U.S. dollar had little reaction to data showing a smaller than expected improvement in the job market. Weekly jobless claimed edged down to 840,000 in the latest period from an upwardly revised 849,000 the previous week. Falling short of forecasts of 820,000, the data was consistent with an ongoing slowdown in the pace of improvement for the wider labor market. The buck’s bias has turned a bit neutral as hopes for eventual stimulus cap upside, but uncertainty over the timing and the election outcome limit declines.


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