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Currency Market Analysis

Oct 19, 2020 | Currency Market Analysis

Global Themes

Signs of a broadening global economic recovery buoyed risk appetite at the expense of the U.S. dollar. The euro, sterling and Canadian dollar rose after losing ground last week against the greenback. While softer, the U.S. dollar generally favored the top of its ranges, underpinned by ongoing uncertainty related to rising coronavirus infections, election jitters and ever shifting prospects for U.S. fiscal stimulus. The outlook for the global recovery, while uncertain, brightened following better than expected news on consumer spending in the world’s two biggest economies. After data Friday showed a bigger than expected jump in U.S. retail sales, numbers for China Monday also surprised to the upside. China’s economy slowed more than expected to a 2.7% rate in the third quarter. But better than expected retail sales and factory growth offered hope of faster fourth quarter growth.


The euro rose from two-week lows against the greenback as signs of improving global growth whet investor appetite for risk. The single currency is likely to stick to well-worn ranges ahead of data Friday that’s forecast to show the bloc’s economy decelerated in October. Germany and the wider euro area publish preliminary PMI numbers Friday on factory and services growth. 


Signs of a rebounding world economy buoyed the Canadian dollar which rebounded from one-week lows. Oil markets were muted, though above $40. Wall Street futures cheered encouraging data since Friday on consumer spending from the world’s two biggest economies. A Canadian report today is forecast to show wholesale trade, a key gauge of Canada’s services sector, rose for the fourth month in a row in August, albeit at a slower pace of 0.3% versus 4.3% in July and June’s record jump of 18.5%. Canada issues top tier data Wednesday on consumer inflation and retail sales, numbers that will speak to the strength of Canada’s recovery from the pandemic-induced downturn.


Sterling bounced out of its biggest hole in a week as the Brexit parties returned to the negotiating table, something that was in doubt after Britain’s self-imposed deadline for a trade pact by Oct. 15. Support for sterling likely hinges on Brexit optimism and a weaker dollar, as U.K. data this week are forecast to show weak inflation Wednesday, slower retail spending Thursday, and Friday when preliminary factory growth is expected to moderate. 

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