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Currency Market Analysis

Oct 16, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar wavered Friday but was on track for its first weekly gain in three weeks. The Canadian dollar and euro rose above one- and two-week lows respectively, while sterling was pitted in a tug of war between London and Brussels over Brexit. Market optimism was punctured this week to the benefit of the greenback amid a quartet of concerns over the virus, stimulus, the U.S. economy and the fast-approaching presidential election. The bar appears elevated at best for Washington to agree on stimulus before the election. A spike in weekly jobless claims to the highest in two months bolstered the view that U.S. growth is poised for a sharp slowdown over the final quarter of the year. On tap today are reports on how the economy-driven American consumer is not only feeling but spending. Outcomes that depict a cautious consumer could add to muted market sentiment.


The Loonie stabilized after a volatile week in which it scaled one-month peaks Tuesdays only to descend to one-week lows days later. Canada’s dollar was poised for a down week amid caution over a quartet of concerns related to the virus, Washington stimulus, global growth and America’s presidential election. The Loonie brushed aside domestic news showing a bigger than expected decline (-2%) in manufacturing sales in August as it followed a big gain and upward revision of 7.2% in July.


The euro rebounded from two-week lows but was still nursing losses for the week against the greenback. Euro zone data confirmed the anemic shape of the bloc’s economy as inflation contracted, falling 0.3% in September. The data offered evidence of how both surging virus cases and euro strength have converged to put twin headwinds on the economy, keeping pressure on policymakers to further loosen policy. Europe releases preliminary PMI surveys for both manufacturing and services growth on Oct. 23.


The U.S. dollar favored session lows after the first of two looks at the health of the all-important American consumer surprised to the upside. U.S. retail sales jumped 1.9% in September, easily eclipsing forecasts of a 0.7% increase and followed a 0.6% gain in August. Evidence of a resilient consumer may not be sustainable amid mounting evidence of a stalling labor market. Next up: A report on U.S. consumer sentiment at 10 a.m. ET that’s forecast to inch above six-month highs.


Sterling whipsawed with every word from the Brexit parties who remained at loggerheads over negotiations on a free trade deal. The pound initially fell after British Prime Minister Boris Johnson signaled a readiness to walk away from the talks. Sterling stabilized after the EU signaled an openness to resume negotiations next week. The longer the talks drag on without a deal, the greater the risk of a disorderly no-deal Brexit at the end of the year, an outcome betting markets consider bad for sterling’s prospects.

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