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Currency Market Analysis

Oct 27, 2020 | Currency Market Analysis

Global Themes

The buck’s quick start to the week ebbed as Wall Street showed signs of recovering after its worst day in a month. Canada’s dollar led major currencies higher against the greenback with the euro and sterling firm. Currency action was muted with many players favoring the sideline ahead of America’s presidential election next week. A trio of uncertainties continue to stalk the market, providing a floor for safer bets like the greenback. Faster virus infections suggest slower growth in the current quarter. Dampened hopes of pandemic relief arriving anytime soon is also leading many to reconsider expectations for fourth quarter growth. Meanwhile, America’s Nov. 3 election could decide not only who occupies the White House but also the size and scope of stimulus. With so much uncertainty, many have adopted a wait and see posture, keeping currencies rangebound.


Sterling ticked higher along with risk appetite. Sentiment remained muted for currencies, keeping the majors nestled within recent ranges. Upside for the pound hinges on positive Brexit developments as U.K. fundamentals showed more fragility. A gauge of British consumer spending missed the mark with an unexpected contraction in October. The data played up fears of slower spending in the face of rising unemployment. 


The dollar favored session lows after better than expected data boded better for Wall Street to recover from its worst day in a month. While a volatile survey, U.S. durable goods jumped nearly 2% in September, compared to forecasts of a 0.5% increase. The subcomponent on business spending also beat with a 1% increase. The data cemented expectations that third quarter GDP would increase around 30%. U.S. consumer confidence, due today at 10 a.m. ET, is forecast to inch further above 100, terrain consistent with healthier growth. Today’s data won’t allay fears of markedly slower growth during the fourth quarter, however. 


A tentative improvement in risk appetite helped the loonie recover from 10-day lows. Sentiment remained cautious for the loonie on the eve of a Bank of Canada policy decision. Come Wednesday, the BOC is expected to maintain a record low base rate of 0.25%. While the local economy has shown impressive signs of rebounding from the pandemic recession, the outlook remains fraught with downside risks as Covid cases accelerate at home and abroad. Central bank messaging that warns of a potentially dark and cold economic winter would leave the loonie vulnerable to the downside. 


The euro steadied after a brief dip below a floor against the greenback. The ECB’s Thursday policy decision is considered a key guidepost to how the euro fares over the short run. No policy changes are expected on Oct 29, but a heightened sense of caution and concern over the economic outlook could signal more monetary stimulus is on the way before year-end, a scenario that could weigh on the euro.

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