Currency Market Analysis

Nov 05, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar sank as global markets extended a post-election rally. Nursing broad declines, the greenback plunged to one- and two-week lows against the euro and Canadian dollar and tumbled to its lowest in three weeks versus the Aussie dollar. The Bank of England boosted stimulus Thursday, though sterling rallied in relief after the U.K. government extended its wage support program to March. The greenback is bearing the brunt of a market rally on hopes that an election resolution was in sight and that growth-friendly policies would largely remain intact. A potential Biden administration, coupled with Republicans maintaining control of the Senate, would bode well for low taxes and loose regulation. Dollar weakness also stemmed from expectations that the Fed today could signal greater concern about the economic outlook and a readied stance to redouble stimulus to help stave off a markedly slower recovery.

EUR

The euro soared more than 1% to 9-day highs against the broadly weaker dollar. The euro has found support as investors looked beyond U.S. election uncertainty and see scope for growth-friendly policies to remain intact. Dollar weakness is overshadowing dimming economic prospects in Europe where surging coronavirus cases are expected to significantly slow growth and lead to stronger ECB support by year-end.

CAD

The loonie resumed a rally that catapulted it to two-week peaks, finding twin tailwinds from voracious, for now, risk appetite and broad-based greenback weakness. Upside was checked a bit by subdued oil markets and caution on the eve of Canada’s monthly jobs report. Forecasts suggest that Canada shed workers, roughly 7,500, for the first time in six months in October, a relatively modest amount seen keeping unemployment at 9%.

GBP

Bold action from Britain’s government and central bank lit a fire under sterling, sending it sharply higher. A united Bank of England increased its asset purchases by a more substantial than expected GBP150 billion to nearly GBP900 billion. The bold central bank action was followed up by news from Britain’s Treasury chief that a wage support program would be extended by several months through March 2021. Taken together, the bold actions bolstered confidence in the economic outlook which could go some way in slowing an expected rise in unemployment.

USD

The U.S. dollar remained pinned at session lows following another underwhelming reading on America’s job market. Weekly jobless claims inched lower to a still historically high 751,000 in the latest period, printing north of forecasts of an improvement to 732,000. Taken together with this week’s disappointing ADP report, it suggested a somewhat higher risk of nonfarm payrolls tomorrow missing to the downside. Nonfarm payrolls likely grew by 600,000 in October, according to consensus estimates, down from 661,000 in September. Later today at 2 p.m. ET, the Fed is expected to keep interest rates near zero but could signal greater concern over the outlook and a readied stance to increase stimulus.


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