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Currency Market Analysis

Oct 14, 2020 | Currency Market Analysis

Global Themes

America’s dollar was mostly steady after logging its best day in three weeks. Sterling bounced above one-week lows while the euro and Canadian dollar hovered near lows for the week. The dollar has rebounded this week has hopes fade for stimulus or a coronavirus vaccine anytime soon. Markets, meanwhile, are increasingly coming to terms with the notion that any further fiscal aid from Washington is likely to materialize after the Nov. 3 election. And the longer it takes for massive stimulus to arrive, the more it threatens to slow the recovery. U.S. numbers over the balance of the week are expected to highlight the vulnerable shape of the world’s biggest economy. Weekly jobless claims Thursday are expected to remain elevated and north of 800,000 while retail sales Friday are forecast to slow for the fourth straight month.


A gauge of U.S. business prices rose but the dollar fell as the data wasn’t strong enough to pull forward expectations for the Fed to lift interest rates from crisis lows. The 0.4% annual rise on the producer price index marked the first increase since March. Still, inflation is running below the Fed’s average rate of 2% which continues to give policymakers ample leeway to maintain low rates to help foster a strong and sustainable recovery from the pandemic-induced recession.


The euro fell to nine-day lows as data showed rising Covid infections putting a brake on the bloc’s recovery. Euro zone industrial production rose by 0.7% in August after an upgraded 5% jump in July. Broader market caution also worked against the euro as it boosted demand for safe havens like the greenback. Data Friday is forecast to confirm that euro area inflation contraction 0.3% in September, an alarmingly low level seen keeping the door wide open to stronger stimulus from the ECB.


The Canadian dollar eased off one-month highs as uncertainty related to U.S. stimulus and a Covid vaccine dampened risk sentiment. The loonie has outperformed of late thanks to strong domestic data and hopes that Washington was moving toward a deal on massive stimulus of around $2 trillion. A lack of much domestic data this week has led the loonie to take its cues from broader market sentiment which has turned somewhat cautious.


The U.K. pound bounced above one-week lows, a sign that the market hasn’t thrown in the towel on London and Brussels clinching an elusive trade agreement before the end of the year. The two sides are scrambling to reach a deal, as a messy, no-deal Brexit would be the least desirable outcome for either party. The pound continues to serve as a barometer of confidence in the parties reaching a long-term trade agreement.

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