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Currency Market Analysis

Oct 23, 2020 | Currency Market Analysis

Global Themes

Expectations that Washington would eventually come to the rescue with bold stimulus pushed the greenback to the back of the pack. The buck was subdued Friday but above multiweek lows. For the week, the U.S. dollar index was down nearly 1% as market players looked past the noisy stimulus negotiations. Last night’s final U.S. presidential debate, while more productive than the first, didn’t meaningfully alter opinion polls. Should Joe Biden, the former vice president, win the election it could pave the way for more robust stimulus than under a second term for President Trump. The greenback’s loss of altitude allowed the euro and sterling to weather downbeat business surveys that showed moderating growth. Canada’s dollar firmed. Colossal events loom over the next two weeks. The U.S. and Europe next week issue third quarter growth with U.S. Election Day following the week after.


Sterling was poised to get back in the weekly win column, though it fared unevenly Friday. On the bright side, U.K. retail sales topped forecast with a 1.5% surge in September while August spending got upgraded. While encouraging, stronger consumer spending isn’t likely sustainable against a backdrop of rising unemployment. Meanwhile, fresher data today showed slower overall business activity for the month of October. On balance, the data keeps the door wide open to stronger stimulus from the Bank of England as soon as its next meeting on Nov. 5.


A stronger euro held aloft near five-week peaks as a weaker greenback overshadowed evidence of moderating European business activity in October. Risk assets held the upper hand this week as market players pinned their hopes on Washington eventually agreeing on bold stimulus to help rejuvenate a wavering recovery. Look for European fundamentals to drive the single currency next week with an ECB policy meeting Thursday followed by big ticket numbers Friday on third quarter growth, inflation and unemployment.


A firm loonie Friday was set to finish the week ahead of the greenback. Consequently, Canada’s dollar held within striking distance of six-week highs, bolstered by a solid week for risk appetite. The Bank of Canada looms next week with expectations for policymakers to keep their benchmark interest rate at a record low of 0.25%. The BOC also will provide an updated economic outlook that if cautious on recovery prospects could limit scope for loonie appreciation.   

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