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Currency Market Analysis

Oct 15, 2020 | Currency Market Analysis

Global Themes

A selloff in global markets sparked a flight to safety in the greenback, pushing the U.S. unit to one-week peaks. The euro and Canadian dollar dipped to one-week lows with sterling leading major currencies lower, down around 1%. Market optimism is in shorter supply given transatlantic political uncertainties and fears that new Covid-limiting restrictions would undercut an already fragile global recovery. Washington remains the main drag on sentiment as it appears all but certain that any new stimulus for households and businesses would have to wait until after the presidential election, a longer timeframe that threatens to subject the economy to greater downside risk. America’s moderating job market is in focus today. A print of weekly jobless claims above 800,000, which is expected, would underscore a vulnerable labor market.

GBP

Sterling tumbled as uncertainty over a Brexit deal flared and sliding global markets spurred a flight to safety in the U.S. dollar. The pound fell the better part of 1% as today’s UK-imposed deadline to reach a trade agreement was all but certain to come and go without a pact. While volatile of late, the pound’s bias has turned more neutral with downside limited by hopes that the UK and EU would eventually reach a trade agreement, even if it’s limited in scope. The rise in Covid cases across Europe is increasing the economic headwinds, suggesting neither party could afford a nasty breakup in the months ahead.

EUR

A break of key support knocked the euro to late September lows. Growth fears are on the rise in Europe to the detriment of the single currency as accelerating Covid cases threaten to renew economy-crimping business lockdowns. Disappointing European numbers this week highlighted a fragile recovery, showing a bigger than expected deterioration in German investor morale and a sharper than expected slowdown in euro zone factory growth.

CAD

Canada’s dollar sank to one-week lows as global markets skid on worries about surging virus cases derailing a fragile recovery in the world economy. Risk aversion pushed oil back below $40, a nearly 4% plunge, after prices settled above $41 Wednesday. The Aussie dollar also fell to one-week lows after dovish remarks from the head of the country’s central bank were consistent with an imminent reduction in lending rates from 0.25%. The RBA could slash rates from already record low levels on the first Tuesday of November which happens to be the same day as America’s presidential election.

USD

The U.S. dollar favored session highs after mostly disappointing news on the world’s biggest economy added to risk-off sentiment. Offering more evidence of a slowing jobs recovery, weekly jobless claims unexpectedly rose to 898,000 versus forecasts of 825,000 from a revised 845,000 the previous week. The Empire State index underwhelmed, coming in at 10.5 in October compared to forecasts of 15. The Philly Fed index beat expectations, rising to a February high of 32.3 for October.


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