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Currency Market Analysis

Oct 13, 2020 | Currency Market Analysis

Global Themes

A trifecta of worries helped the greenback inch upward for a second straight day. Canada’s dollar steadied around one-month peaks but the euro and sterling slipped to lows for the week. The dollar edged off three-week lows as surging virus outbreaks showed signs of damaging growth abroad. The spike in Covid cases led to a bigger than expected plunge in German investor optimism. British unemployment soared more than expected to 4.5% in August, the highest since early 2017. In Washington, meanwhile, lawmakers remain at an impasse over bold stimulus to keep the recovery on track. The longer it takes Washington to deliver fiscal stimulus, the more damage it could do to the world’s biggest economy. The safer U.S. currency also was supported by uncertainty as third quarter corporate earnings get underway.


A surge in U.K. unemployment to three-year highs pushed the U.K. pound to lows for the week. Britain’s jobless rate shot to 4.5% in the three months to August, the highest since 2017, overshooting forecasts of 4.3%, and 4.1% in July. Making matters worse, the spike in unemployment is perceived to be in the early stages, as a government wage support program expires this month. The surge in Covid cases led the British government Monday to impose new restrictions that threaten to further slow the economy.


The U.S. dollar shrugged off data showing slower consumer inflation. As expected, America’s consumer price index slowed to an increase of 0.2% in September which was half the rate of August’s 0.4% increase. Annual core inflation steadied at 1.7%, below forecasts of 1.8%. Benign inflation is consistent with the Fed keeping interest rates at rock-bottom levels for years to come. 


The euro slipped from three-week highs as the surge in area Covid infections showed signs of harming the bloc’s biggest economy. Germany’s ZEW survey of investor optimism plunged to 56.1 in October, compared to 77.4 in September, and forecasts of 73. A trio of uncertainties related to the virus, Brexit and America’s election were credited with dimming the outlook for the German economy.


Canada’s dollar emerged firm and reinvigorated after the nation’s three-day holiday weekend to celebrate Thanksgiving. The loonie squeezed more juice out of a jobs-driven rally, as it notched new one-month peaks. The local dollar received a shot in the arm late last week after September hiring smashed forecasts with a gain of nearly 380,000, an outsized amount that shaved more than a percentage point off unemployment, now at 9%. Nevertheless, area growth is expected to decelerate over coming months which could check the loonie’s rise.

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