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Currency Market Analysis

Oct 26, 2020 | Currency Market Analysis

Global Themes

Weaker markets led to a stronger U.S. dollar. The dollar climbed above multiweek lows against the euro, sterling and Canadian dollar. Skittish investors are scooping up the greenback as virus cases accelerate around the world, stimulus talks in Washington remain in limbo and trepidation is on the rise ahead of America’s presidential election. Chances of Washington agreeing on more pandemic relief before the big vote appear remote. Meanwhile, the uncertain outlook for stimulus could worsen if it takes a while to determine the winner of next week’s election. Broad based risk aversion boosted the greenback and helped it recover after it shed 1% last week against a basket of six rivals. The week ahead features central bank decisions in Canada and the euro zone on Wednesday and Thursday respectively. U.S. third quarter growth looms Thursday with GDP numbers due from Canada and Europe Friday.

GBP

A mixed U.K. pound rose against the weaker euro but steadied versus the greenback. The pound’s general buoyancy reflects cautious optimism in the U.K. and EU reaching some sort of trade agreement that avoids economy-denting tariffs from next year. A lack major British data this week will put heightened focus on Brexit negotiations, leaving sterling at risk of two-day volatility. 

EUR

The euro tested support as weaker markets buoyed the dollar. The single currency’s retreat gained traction after Germany’s influential Ifo survey of business confidence fell for the first time in six months in October, a sign of accelerating virus cases taking a toll on sentiment. The euro could be ripe for some profit-taking after rising last week to five-week peaks. The ECB issues a policy update Thursday which could foreshadow area growth data Friday. A dovish message would be consistent with central bank deploying stronger, euro-negative stimulus by year-end.

CAD

The Canadian dollar neared one-week lows as weaker markets helped strengthen demand for the greenback. The Bank of Canada Wednesday issues a policy decision and will offer updated economic projections. Also in focus is monthly GDP for August Friday that’s forecast to show Canada’s economy slowed to around 1% after a 3% expansion in July. Cautious messages from the BOC and Canada’s economy this week could leave the loonie vulnerable to surrendering part of a rally this month to six-week highs.


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