Currency Market Analysis

Oct 22, 2020 | Currency Market Analysis

Global Themes

The greenback rose above multiweek lows as market caution crept higher. The dollar recovered from five-week lows against the euro and its weakest in six weeks versus peers from Canada and Britain. Global markets were subdued, reflecting dampened prospects for U.S. stimulus anytime soon. Markets found another negative from the record spike in Covid cases in Europe. U.S. events today are likely to keep cautious sentiment elevated. A report on weekly jobless claims this morning is expected to confirm a recent stalling in the labor market recovery. Jobless claims are forecast to print around a high 860,000 from nearly 900,000 the prior week. The final debate tonight between President Trump and Democratic challenger Joe Biden will be an opportunity to sway opinion polls. While stronger on the day, the U.S. dollar index remains in a weekly hole and not far from seven-week lows.

CAD

The loonie eased off six-week highs amid a moderation in risk appetite. The stronger U.S. dollar slightly eclipsed firmer oil which kept above $40. Investor confidence weakened anew as doubts surfaced in Washington agreeing on much-needed stimulus before Election Day, now 12 days away. Markets’ cautionary backdrop allowed USD/CAD claw back a penny from Sept. 7 lows.

USD

The U.S. dollar index rebounded from seven-week lows after better than expected news on America’s job market. Weekly jobless claims fell by more than 50,000 to 787,000, the lowest level since March. Falling below 800,000 triggered a knee-jerk lift for the greenback as it tempered fears of a decelerating recovery. But the fact that the data remains around four times higher than pre-pandemic levels is a reminder of the still-weakened shape of the job market. It’s unclear whether the better data stems from people finding jobs or if their benefits expired. The data is welcome news nonetheless but won’t reduce the urgency for Washington to deliver bold stimulus.

EUR

The euro slipped from five-week peaks as caution descended anew on global markets. Dampened hopes for bold U.S. stimulus anytime soon threatens to subject America’s wavering recovery to more wear and tear. Increased caution was enough to steer currency players to the safety of the greenback. Meanwhile, the rise in Covid cases in Europe and the resulting business restrictions have put a cloud over the continent’s recovery prospects, potentially limiting upside for the euro.

GBP

The U.K. pound retreated from six-week highs against the stronger greenback. The pound continues to wax and wane along with prospects for a Brexit deal before year-end. For the week, sterling remains in positive territory, a sign that odds favor the U.K. and EU clinching some sort of trade agreement before the transition period expires in December. Weak British data added to the pound’s tepid tone as factory orders kept in the red in October, printing at minus 34. Slower consumer spending is in the cards for a Friday survey.


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