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Currency Market Analysis

Nov 02, 2020 | Currency Market Analysis

Global Themes

The greenback steadied near fresh one-month peaks as the year’s most anticipated week arrived. Sterling and the euro pared declines after sinking to three- and five-week lows, respectively. Canada’s dollar rose on the back of equity futures signaling big gains to begin the week, which overshadowed lower oil markets. Global markets took tentative comfort from signs of a recovery in manufacturing activity in China and Europe. Still, underlying sentiment was fraught with uncertainty on the eve of America’s presidential election. The outcome could go a long way in shaping greenback sentiment over coming months. While Democrat Joe Biden leads in national polls, the race against Republican incumbent Donald Trump is considered closer in key swing states, keeping uncertainty over the outcome high. The election headlines a major week for markets that includes central bank decisions in the U.S. and Britain, and U.S. and Canadian employment data Friday.


The U.S. dollar held firm as caution remained high on the eve of America’s presidential election. Even if the election wasn’t on the calendar, the week ahead features lots of event risks to drive currencies. The Fed will issue its second to last policy decision of the year Thursday, followed by October nonfarm payrolls on Friday. A Fed that signals growing concern about the economic outlook would strengthen the case for more dollar-negative stimulus. U.S. hiring likely slowed to a gain of 600,000 from an increase of 661,000 in September. Unemployment is forecast to improve to a still-high 7.6% from 7.9%. Scope for dollar upside could prove modest if the outcome of the election should remove a significant source of market instability. 


Sterling fell to more than three-week lows as the greenback held firm and the market girded for more stimulus from the Bank of England this week. Forecasts call for the BOE Thursday to top up its asset purchases by GBP100 billion to GBP845 billion. While the BOE is not expected to chop its record low 0.1% interest rate below zero it could signal how soon such drastic policy could arrive in the face of fresh lockdowns to slow the resurgent spread of the coronavirus. 


The euro fell to five-week lows as surging coronavirus cases across the continent have significantly soured prospects for economic recovery from the pandemic. The big blow to the euro came last week when the ECB dialed up its concern about a recovery that it acknowledged had lost significant momentum and readied another dose of monetary stimulus by year-end. The euro pared declines Monday after euro zone manufacturing data enjoyed a surprise uptick.


The Canadian dollar rebounded from one-month lows, boosted by Wall Street showing signs of bouncing back after its worst week since March. Still, underlying sentiment remained cautious for the Canadian unit as oil kept subdued around $35, and uncertainty remained high over the outcome of America’s election Tuesday and key October jobs reports from both sides of the border Friday. Forecasts suggest Canada shed 7,500 jobs in October after September’s gain of more than 378,000. Unemployment is forecast to steady at 9.0%.

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